How to Avoid Paying Taxes on Inherited Money
As a beneficiary in England and Wales, you generally do not pay tax on money you inherit. IHT is paid by the estate before it reaches you. The executors settle any tax bill with HMRC before distributing assets.
If the estate is worth less than £325,000 (the nil-rate band), no IHT is due. If the deceased owned a qualifying home and left it to children or grandchildren, the threshold rises to £500,000. A surviving spouse or civil partner inherits everything tax-free with no upper limit, and any unused nil-rate band transfers to the survivor's estate.
If you want to redirect your inheritance, say to your own children, you can use a deed of variation within two years of the death. This treats the gift as though it came directly from the deceased, which can save IHT at the next generation.
One thing to watch: once you receive the inheritance, any income it generates (rent, dividends) is subject to income tax in the normal way. Selling an inherited asset at a profit may trigger capital gains tax. But the inheritance itself is not taxed again in your hands.
If the estate is worth less than £325,000 (the nil-rate band), no IHT is due. If the deceased owned a qualifying home and left it to children or grandchildren, the threshold rises to £500,000. A surviving spouse or civil partner inherits everything tax-free with no upper limit, and any unused nil-rate band transfers to the survivor's estate.
If you want to redirect your inheritance, say to your own children, you can use a deed of variation within two years of the death. This treats the gift as though it came directly from the deceased, which can save IHT at the next generation.
One thing to watch: once you receive the inheritance, any income it generates (rent, dividends) is subject to income tax in the normal way. Selling an inherited asset at a profit may trigger capital gains tax. But the inheritance itself is not taxed again in your hands.