Tax on inheritance

Confused_Jo

My OH's gran died back in March and the probate of her estate is plodding along. He is due to inherit £5k, which I have convinced him would be best used to pay off part of the mortgage.

If he didnt declare it on a tax return to the IR how would they know he had it and would be liable for tax if he did declare it?
The will was written quite a while ago and his grans estate is just within the inheritance tax limits.

Thanks
jo

elliebean_2

If his gran's estate is under the inheritance tax threshold the executors won't have to pay any inheritance tax on it. Your OH won't have to pay any tax on it either - it is a cash gift so no other tax is due on it.

Gordon_the_Moron

The inheritance tax threshold is £285k

Money inherited by the deceased person's husband/wife is exempt.

sasparillo

Surely then you could never lump in the legacy with your other savings? How would you work out what to put on your income tax return if you put the legacy with the rest of your savings which are taxed?

jem16

The actual inheritance is tax-free but once you receive it and choose to save it, you would be liable to pay tax on any interest gained.

sasparillo

So you would never pay income tax on the money you receive even though it would form a part of income. And you would still surely have to keep that sum of money separate to know how much interest you get from it and pay income tax on the interest!? I appreciate your answering but I still can't work this out!:o

jem16

It's not treated as income so is not due for income tax.

Think of it as a gift.

If you decide to keep the money and add it to your savings, you would get interest on it. This interest may be taxable depending on your total income. If you don't earn enough to be taxed, you won't pay any tax on the interest. It just becomes part of whatever savings you have.

If you decide to spend all of it, you don't pay any tax ever.

Basically once you get thie "gift" you use it as you want. You don't keep it separate from everything else.

Robert_Sterling

sasparillo wrote "So you would never pay income tax on the money you receive even though it would form a part of income."

No tax on this gift of £5000 ..... That is correct

"And you would still surely have to keep that sum of money separate to know how much interest you get from it and pay income tax on the interest!?"

Once you have the £5000 you can do what you like with it.
If it earns any interest then like any other savings it will be taxed at what ever is the appropriate rate e.g. 0% 10% 20% 40%.

sasparillo

Hi,

Thanks for your answers.

So in other words, you would always have to remember to deduct 5,000 GBP when working out liability for income tax, unless you spend part or the whole of it and then you would have to keep a track of how much is left of the 5,000 GBP. Meanwhile the interest will be taxed as income. How does the Inland Revenue then keep a track on what people do receive genuinely as an inheritance and who is just trying it on?

sasparillo

Hi,

Wondering whether anyone had an answer on this? Re-reading the thread, I've also had the impression that we are only talking about people who don't earn enough to pay income tax in any case. Can someone clarify, if you do earn enough to attract income tax and receive a legacy, is this included as income?

And if not, do you always have to remember to deduct 5,000 GBP when working out liability for income tax, unless you spend part or the whole of it and then have to keep a track of how much is left of the 5,000 GBP? And then the interest would be taxed as income? How does the Inland Revenue then keep a track on which people do receive genuinely as an inheritance and which people are just trying it on?

Gorgeous_George

The £5,000 is not treated as income.

Spend it, save it, give it to me. No tax to pay on the £5,000.

Earn £200 interest by investing it anything and, just like any other money that you have, is counted as income and is taxable along with any other income that you have.

If you are still confused, accept the gift and forget that it came from a legacy. Just treat like any other money that you have.



GG