UK Inheritance Tax (Part 2) on Property, Money and Shares

Inheritance Tax on Property, Money and Shares 

You don’t usually pay tax on anything you inherit at the time of inheriting it.

You may however, need to pay:

• Income Tax on profits that you later earn from your inheritance, e.g. dividends from shares or rental income from a property.
• Capital Gains Tax if you later sell shares or a property that you’ve inherited.

Inheritance Tax

The Estate of the person who died usually pays Inheritance Tax.

• You may need to pay Inheritance Tax if the estate can’t or doesn’t pay it.
• You may need to pay Inheritance Tax on a gift that you receive within 7 years of that person’s death.
• You may also need to pay it if your inheritance is put into a Trust and the Trust can’t or doesn’t pay.

If the Will says the Inheritance Tax should be paid out of the assets you’ve inherited, the Executor of the Will or Administrator of the estate will usually pay it.

Money and Shares

In most cases you don’t pay any tax on money and shares when you inherit them.

You may however, have to pay Inheritance Tax on money and shares that you inherit if the deceased person’s estate can’t or doesn’t pay.

Any money or shares that a person gives you before they die are known as gifts and are subject to different rules.

Income Tax

You will have to pay Income Tax on:

1. Any interest that you earn from money you inherit
2. Any dividend payments received on shares you inherit

Capital Gains Tax

You’ll have to pay Capital Gains Tax if you sell or dispose of inherited shares that have gone up in value since the person died.

Property

You don’t pay Stamp Duty, Income Tax or Capital Gains Tax on property that you inherit at the time of inheriting it. You may however, have to pay Inheritance Tax if the deceased’s estate can’t or doesn’t pay it. The rules are different in Scotland.

Selling the Property

You don’t pay Capital Gains Tax when you sell your home. You do however, pay Capital Gains Tax if you make a profit when you sell a property that isn’t your main home.

If inheriting a property means you own 2 homes, you’ll have to nominate one of them as your main home. You must tell HMRC which property is your main home within 2 years of inheriting the property.

If you don’t tell HMRC and you sell one of the properties, HMRC will decide which property was your main home.

Renting out the Property

You may have to pay tax on the rental income.

Properties held in Trust

Usually if you inherit property held in a Trust, you are the ‘Beneficiary’ and the Trustees are the legal owners and responsible for paying tax on income the Trust receives. You may still have to pay tax on any income you receive from the Trust.

Bare Trusts

If the Trust is a ‘Bare Trust’ you are both the beneficiary and the legal owner and are responsible for paying tax on income the Trust receives.

Joint Property, Shares and Bank Accounts

In most cases, you don’t have to pay any Stamp Duty or Tax when you inherit property and shares that were jointly owned with the deceased.  You also may not be liable for tax on money held in joint bank accounts with the deceased.

What you pay will depend on how you owned the shares or the property or how your bank accounts were set up.

If you and the deceased jointly owned the assets, you’ll be known as Joint Tenants (‘Joint Owners’ in Scotland).

If you each owned a part of the assets, you’ll be known as ‘Tenants in Common’ (‘Common Owners’ in Scotland and ‘Coparceners’ in Northern Ireland).  Each part could be half or an agreed percentage of the money, shares or property.

Check with your bank if you’re not sure how the money in your account(s) was divided up.

Joint Tenants

You automatically inherit anything you owned as ‘Joint Tenants’.

You will have to pay Inheritance Tax if the whole of the deceased’s estate (all their money, property and possessions) is worth more than the Inheritance Tax threshold of £325,000 and the deceased’s estate can’t or doesn’t pay.

Tenants in Common

You will have to pay Inheritance Tax on the deceased’s share of the money in bank accounts, shares or property if the whole of their estate (money, property and possessions) is worth more than the Inheritance Tax threshold of £325,000.

If the deceased left you their share of the money, shares or property in their Will, the Executor of the Will or Administrator of their estate should pay the Inheritance Tax out of the estate.

However, if the estate doesn’t have enough money to pay the Inheritance Tax on the deceased’s share of the assets or the Executor doesn’t pay, you’ll have to pay it. You may have to sell the shares or property to pay the tax and any other debts.

HM Revenue and Customs (HMRC) will contact you if you need to pay.

You will have to tell the Land Registry about the death of one of the property’s owners.

Income Tax and Capital Gains Tax

You may have to pay other taxes on anything you earn or profits you make from:

• Bank interest
• Share dividends
• Property

For more information and advice contact Mico Edward today! info@micoedward.com