Tax on beneficiaries individual Inheritance

nad1611

I wanted to know if a beneficiary needs to declare an inheritance . I'm not talking about IHT (£325.000 threshold), which is obviously down to the executor. I'm asking about a beneficiary's legal responsibility to declare an additional income when it comes in the form of an inheritance?

SeniorSam

If you are a beneficiary you do not need to declare your inheritance, as it is not deemed to be income, but a gift which is free of tax. However, if you have an income from a Trust, then yes, it needs to be decalred as income.

Hope this answers your query?

Sam

nad1611

SeniorSam wrote: »

If you are a beneficiary you do not need to declare your inheritance, as it is not deemed to be income, but a gift which is free of tax. However, if you have an income from a Trust, then yes, it needs to be decalred as income.

Hope this answers your query?

Sam

Thanks Sam, I guess that the idea of it being a Trust or otherwise would be in the wording of a Will? We'll just literally be given an inheritance following a calling in of monies and monies from conversion of properties. So I guess this isn't a Trust?

SeniorSam

Correct, the Will would state if it's to be a Trust. More usually, the beneficiaries receive their inheritance once Probate has been granted and any tax on the estate paid.

Sam

nad1611

Yes that's what will happen with us, it will be received after probate etc, so thanks again.;)

John_Pierpoint

There is a probability that the assets of the estate will generate income while in the hands of the executor.
The executor should give you a form R185 giving your share of this income and any tax that has been deducted.
The tax man should be informed of this new source of income, especially if you need to pay (higher rate?) income tax on the distribution of this income.

SeniorSam

It is my understanding that a Trust pays a higher rate of tax, but the beneficiaries receive their inheritance completely free of any tax, as the Trust has already paid any income tax. The distribution to beneficiaries is not taxable.

I would also expect the Executors to have made a tax return for the deceased, as a tax return of overpaid income tax in the year of death may well add to the 'coffers' for distribution.

Sam

John_Pierpoint

In most cases the executor will be a bare trustee for a standard rate tax payer and the income will be taxed at source, so the beneficiary will have nothing more to do.

However the interest/rent may have been paid gross to the executor, who may or may not understand his income tax responsibilities and the beneficiary may or may not be a standard rate tax payer and finally the will may or may not have created some other animal of trust such as Interest in possession, a minor or handicapped trust or a discretionary trust.

Pay outs from these trusts may well create an opportunity for a beneficiary to reclaim tax paid depending on their tax status?

The R185 and covering letter should make the situation clear to the recipient.