Income tax on inheritance

etienneg

This is not a question about inheritance tax itself, but rather income tax payable by the recipient of the inheritance. I'm assuming that the recipient is not the spouce or civil partner of the deceased, and that they died aged 75 or above. I'm aware that things may change at the budget or thereafter, but the situation now is what I'm asking about.

What income tax does the recipient pay on receipt of the inheritance, and at what rate(s)?

SVaz

Are you talking about inherited cash?  If so then no tax at all on the capital (  interest might be taxed if large enough).

Inherited pension pot?    Income from it is taxed at your own rate if inherited when deceased was over 75.   No tax if under 75 at present,  due to change in 2027. 

Nomunnofun1

etienneg said:

This is not a question about inheritance tax itself, but rather income tax payable by the recipient of the inheritance. I'm assuming that the recipient is not the spouce or civil partner of the deceased, and that they died aged 75 or above. I'm aware that things may change at the budget or thereafter, but the situation now is what I'm asking about.

What income tax does the recipient pay on receipt of the inheritance, and at what rate(s)?

Inheritance tax is paid by the estate, not the recipient. What is the make-up of the estate?

etienneg

Thanks for the reply. The initial thought was about bank accounts, jewellery, car, a house, etc., which I think are all classed as cash?

As regards a pension pot, you say 'income from it is taxed at your own rate'. Does this mean such income is just added to the recipient's other income and tax is paid on the result (which means some may be at the recipient's marginal rate and the rest at a higher rate)?

etienneg

Nomunnofun1 said:

Inheritance tax is paid by the estate, not the recipient. What is the make-up of the estate?

Yes, I know. That's why I specifically asked about INCOME tax, NOT inheritance tax.

SVaz

Yes,  someone with no other earnings would pay 20% tax above their personal allowance (£ 12570 ).  

Someone earning over £12570 would pay 20% tax unless the pension income took them over £50k. 

A 40% tax payer would pay 40% tax . 

SVaz

The money I inherited from the sale of my Dad’s house went into ISAs and a savings account in my Wife’s name as she has the starting rate for savings due to being a low earner. 

The only other issue  to be mindful of when inheriting property is CGT,  if there is a gain between inheriting and selling then you only have 9 months grace, it used to be 3 years.  You can offset all selling fees against any gain though. 

etienneg

SVaz said:

Yes,  someone with no other earnings would pay 20% tax above their personal allowance (£ 12570 ).  

Someone earning over £12570 would pay 20% tax unless the pension income took them over £50k. 

A 40% tax payer would pay 40% tax . 

SVaz: Thank you for your replies. This is now much clearer for me.

Linton

The question was income tax on receipt of the inheritance.  There is no tax on receipt of an inheritance.  Income tax would only apply should you subsequently gain interest, but that is the same as if you used your own money and not received the inheritance.

Nomunnofun1

Linton said:

The question was income tax on receipt of the inheritance.  There is no tax on receipt of an inheritance.  Income tax would only apply should you subsequently gain interest, but that is the same as if you used your own money and not received the inheritance.

I replied accordingly but it seems the op meant something else from the response. 

Albermarle

SVaz said:

Are you talking about inherited cash?  If so then no tax at all on the capital (  interest might be taxed if large enough).

Inherited pension pot?    Income from it is taxed at your own rate if inherited when deceased was over 75.   No tax if under 75 at present,  due to change in 2027. 

AIUI, this change was widely expected, but so far there has been no specific announcement about it.
So not clear whether it will change or not.