Do You Pay Tax On Inheritance?

[megfitz]

My mother-in-law died in December,her estate is divided between the three children..not a vast amount £30K. each approx. Are the beneficiaries liable for Tax on this?? One of her sons is doing the Probate as there is no property only a bank account. Thanks.

[bednobs]

no. Even if it was larger, the beneficiaries are not liable for inheritance tax - the estate it

[boxtops]

bednobs, so does the tax come out of the estate before the funds are distributed?

[woofgang]

yes. One reason that all wills need to go through some form of official process is to ensure that the state gets its cut!

[EDDIE51]

Boxtops, yes, the Inheritance tax comes out of the estate before any distributions are made.

[factor-fiction]

Yes, but in most cases there is no inheritance (IHT) tax since as many estates are below the threshold for IHT which is £325000 or £650000 if one husband /wife's allowance had been carried forward on his/her death to the surviving spouse
http://www.hmrc.gov.uk/inheritancetax/intro/basics.htm
In this case 3 x £30000 is far below the threshold

[factor-fiction]

Sorry, my initial 'yes' was in response to the query from boxtops at 9:13 (I'm a slow typer)

[LankyLanky]

megfitz, the threshold is now £325,000. There is no inheritance tax to pay.

[megfitz]

Thanks for the info, what about income tax-does it have to be declared as unearned income?

[factor-fiction]

No- the only tax to pay is if you are a taxpayer you would pay tax on any interest you get from investing your £30K, but as interest rates are so low the interest would be only around £500 a year so the tax would be around £100 a year

[dzug2]

Income from the estate that arose after death needs to be declared if you do a tax return - as the estate will already have paid income tax on it (in most cases - eg bank interest) there is normally nothing further to pay

If you don't do a tax return no action is needed