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  • Tax when you inherit money, assets or property

Tax when you inherit money, assets or property

When someone dies and leaves you money, assets or property, you usually won't have to pay any Inheritance Tax. This is because Inheritance Tax is generally paid out of the estate before you get your inheritance. However, in certain situations, you might have to pay other taxes.

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Do you pay tax on an inheritance?

There are three types of tax you might have to pay in connection with an inheritance.

Income Tax

You might have to pay Income Tax if the items you inherit generate income for you. Examples include:

  • interest earned on money
  • dividends paid on shares
  • rental income from renting out a property

See our guides on Income Tax

Capital Gains Tax

You might have to pay Capital Gains Tax if you sell, give away or exchange an asset you've inherited and it's gone up in value since the date of death. The legal term for the many ways you can cease to own an asset is 'dispose of' assets. (In some cases you may be treated as if you've disposed of an asset that you still own - for example, if you receive compensation for a damaged antique.)

If the asset you inherited increases in value between the date of the deceased's death and the date you dispose of it, the increase is a 'capital gain'. See more on this in the section below, and in the guides on Capital Gains Tax.

Introduction to Capital Gains Tax

Inheritance Tax

You usually won't have to pay Inheritance Tax on money, assets or property you inherit. Inheritance Tax generally comes out of the deceased's estate before the inheritance is passed on. You will usually only owe Inheritance Tax on a legacy if either of the following applies:

  • it says in the will that you should pay Inheritance Tax
  • the deceased's estate can't pay it

Valuing an estate for Inheritance Tax - worked example

Find out who pays Inheritance Tax under different circumstances

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How Inheritance Tax or other debts may affect inherited property

If you inherit a property from your spouse or civil partner, you're an 'exempt beneficiary' and you normally won't owe Inheritance Tax as long as you're domiciled in the UK.

If you owned property jointly as 'joint tenants' with the deceased and you weren't their spouse or civil partner, you may have to pay any Inheritance Tax due on the property when you inherit it.

If you owned property jointly as 'tenants in common' with the deceased and weren't their spouse or civil partner, but inherited their share under the will, the deceased's executor or personal representative must pay any Inheritance Tax or debts before distributing the estate among the beneficiaries.

They'll usually try to do this using funds from other parts of the estate. However, if there's a shortfall, you as the remaining owner are responsible for that shortfall and HM Revenue & Customs (HMRC) and other creditors have the right to approach you.

If there isn't enough money in the rest of the estate to pay the outstanding tax or other debts, you may need to sell the property.

Read about the tax implications of passing on property

Find out more about residence and domicile issues

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Capital Gains Tax when selling or 'disposing of' a property

If you inherit and dispose of a property you live in

If the inherited asset is a property that you live in as your main home from the time you inherit it to the time you sell or dispose of it, you may not have to pay Capital Gains Tax when you dispose of it. This is because any gain you make when you dispose of your main home may be free of Capital Gains Tax through 'Private Residence Relief', whereas a gain on any other home may not be.

Find out more about Capital Gains Tax relief on your own home

If you inherit and dispose of a second property

You can only have relief from Capital Gains Tax for one property at a time, so if you inherit a second property and live in it as a home, you should nominate one of your homes as your main home. You should do this within two years of making one of them your main home and let HMRC know.

If you don't nominate one of your homes as your main home and later sell or dispose of one of the properties, the decision as to which home was your main home will be made on the facts. You may have to pay Capital Gains Tax if the home deemed not to be your main home has increased in value.

Contact HMRC - Capital Gains Tax enquiries

Read more about Capital Gains Tax and property

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Renting out an inherited property

If you decide to rent out the property, you'll have to pay Income Tax on any profit you make from the rental income - less rental expenses. You'll also have to follow relevant laws on the safety of the property and certain contents.

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If you inherit money, assets or property in a trust

A trust is a way of holding and managing money, assets or property for the benefit of a person or group of people. If you inherit something in a trust, you are the beneficiary, but the trustee is the legal owner of whatever's held in the trust and is legally bound to deal with it as set out by the deceased in their will. The trustee will deal with the trust's tax affairs, but you may have to pay Income Tax on any income you receive from the trust.

However if the trust is a bare trust, you are the legal owner as well as being the beneficiary. You are liable to pay any tax on income the trust earns.

Read more about trusts

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Where to get help and advice

Inheriting a property can be complicated, so it's important to get legal advice from a solicitor. You can also get free and independent advice from a number of organisations such as the Citizens Advice Bureau.

Below are some links to professional organisations - though not all professionals are registered with them.

Find your local Citizens Advice Bureau (Opens new window)

Find a solicitor on the Law Society of England and Wales website (Opens new window)

Find a solicitor on the Law Society of Northern Ireland website (Opens new window)

Find a solicitor on the Law Society of Scotland website (Opens new window)

Get help from the Society of Trust and Estate Practitioners - STEP website (Opens new window)

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More useful links

More about what is exempt from Inheritance Tax

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