When a loved one passes away, they may bequeath an asset to you and this could place new tax obligations on your shoulders. Prestige Tax and Trust Services asks; do you pay tax on inheritance?
As a rule of thumb, you will not pay taxes on assets you inherit at the time you inherit them. However, if you make money on these assets, you may be obligated to pay taxes at a later date.
If you earn a profit from assets you inherit such as dividends from shares, you’ll be required to pay income tax to HM Revenue and Customs (HMRC). If you sell these assets at a later date, you may also be required to pay capital gains tax to HMRC.
Under certain circumstances, you may also be required to pay inheritance tax to HMRC. Usually, the estate of the deceased is responsible for paying inheritance tax. This is charged at 40% if the estate’s worth eclipses a certain threshold (currently £325,000). The estate’s executor is responsible for working out inheritance tax and paying it to the government.
However, there are certain cases where the estate cannot or will not pay inheritance tax. In these cases it will become your responsibility to work out and pay any inheritance tax on assets you inherit from somebody else’s estate. HMRC will contact you and let you know whether you need to pay inheritance tax. It usually applies in the following circumstances:
- If your inheritance has been placed into a trust and for whatever reason, the trust cannot or will not pay its inheritance tax obligations to the government.
- If the person has given you a gift within seven years before they died. You may need to pay inheritance tax on the gift in question.
The deceased may state in their will that inheritance tax should be paid from the assets you inherit. In these cases, the executor or administrator of the estate will usually handle this matter.
Prestige Tax and Trust Services
If you are obligated to pay inheritance tax, or any other taxes, on any assets you inherit, you may wish to enlist expert aid, to ensure you fulfil your legal obligations appropriately. Prestige Tax and Trust Services has the expertise needed to help you navigate tax matters when you inherit assets.