The aim of this blog post is to guide readers in answering the question of whether or not they need to declare their inheritance on their tax returns in the UK. To cover as many relevant details as possible, we will explore real-life situations where inheritance tax applies as well as discuss the process of applying for payment of your Inheritance Tax; should you be required to do so. 

Do I Declare Inheritance On Tax Return In The UK?

While you do need to declare your inheritance to the HMRC in the UK, it is not necessary that you need to declare it on your tax return.

Whether your inheritance is in the form of cash, property, a running business, stocks or shares, you are required by UK law to declare your inheritance to the HMRC within six months of the death of a deceased family member. 

However, you may not have to declare it on your tax return for the simple reason that in most cases, the amount of Inheritance Tax that is due in such cases is paid from the estate of the deceased and managed by the executor of their will. Another reason could be if the value of your inheritance is below £325,000. 

In such cases, no amount of Inheritance Tax will apply to your inheritance. Therefore, even if you have an inheritance, you will not be required to declare it on your tax return as you will not have to pay Inheritance Tax. That said, you will still need to declare your inheritance to the HMRC even if there is no Inheritance Tax due on it.

Then there may be certain situations in which you will be required to pay Inheritance Tax and these are instances where you will have to declare your inheritance on a tax return. 

Prior to this, you must declare your inheritance to the HMRC and report the value of your inheritance by filling in the form IHT400. 

You can call the Inheritance Tax helpline at 0300 1231072 between 9 am to 5 pm from Monday to Thursday to get the detailed information regarding the following areas of Inheritance Tax:

  • understanding the responsibilities regarding your Inheritance Tax payments
  • confirming the forms you need to fill out
  • getting paper copies of relevant forms
  • completing Inheritance Tax forms and submitting them

You can also send your queries regarding Inheritance Tax to the HMRC at the following address:

Inheritance Tax

HM Revenue and Customs

BX9 1HT

United Kingdom

In addition to this, if you are claiming welfare benefits, you will also have to declare your inheritance to the Department for Work and Pensions. An inheritance increases your savings and is counted as a change in circumstances which must be reported to the authorities to re-assess your financial situation.

How Do I Know If I Have To Pay Inheritance Tax?

If you have inherited cash or property valued under £325,000, there will be no amount of Inheritance Tax due in either of the cases. Situations in which you will have to pay Inheritance Tax include the following:

  • your inheritance is valued above the minimum threshold of £325,000
  • the amount of inheritance tax has not been recovered from the estate of the deceased

In the case of an inheritance, the usual practice as per UK law is that the amount of Inheritance Tax is deducted and paid from the estate of the deceased so that the beneficiary does not have to make such a payment. 

However, if this is not the case, you will not only be required to declare your inheritance to the HMRC but may also need financial or legal advice from an expert to attain an assessment of how much Inheritance Tax is due upon you.

Inheritance Tax is applied at the rate of 40% to the amount over and above the minimum threshold of £325,000. This means that the first £325,000 from your inheritance is tax-free. You must pay your Inheritance Tax by the end of the sixth month of the death of a family member who has left the inheritance in your name.

How Do I Pay Inheritance Tax?

You can pay your Inheritance Tax using the following methods:

  • online payment using your bank account
  • online payment using a joint account held with the deceased
  • using telephone banking services
  • building society account
  • a cheque through the postal service

Prior to this, you need to get an Inheritance Tax reference number from the HMRC and fill out the form IHT400 to proceed with your payment.

You can choose to pay the amount in full or request monthly instalments on your Inheritance Tax payments; especially in the case of buildings, shares or securities and part or all of a business.

You will find details on how to proceed with paying your Inheritance Tax in notes on IHT400 published by the HMRC. However, it is advisable to seek the guidance of a financial or legal adviser.

How Much Inheritance Tax Do I Have To Pay?

The standard rate of Inheritance Tax is 40 per cent on an estate valued at or more than £325,000.

Even though there is no inheritance tax levied on an estate that is valued below £325,000; however, you may still be required to report the property to HMRC. Similarly, if valuables above the £325,000 threshold are left behind in the name of one’s partner or spouse, a charity or a community club, there will be no inheritance tax levied. 

If the same property is left behind for children, the threshold will increase to £500,000. 

Gifts between partners or spouses are tax-free and will not be counted towards inheritance tax as long as they are permanent residents in the UK and are legally married or in a civil partnership. Additionally, donations made to charities, trusts and national organisations are also tax-free. 

Therefore, there will be no Inheritance Tax due on the estate of a deceased owner if all of it is being passed to a spouse, partner or to charity.

Conclusion:

The above discussion has helped in highlighting that while one would need to declare their inheritance to the HMRC, it is not necessary that they must do so at the filing of their next tax return. Not all beneficiaries are required to pay an Inheritance Tax as it is generally paid through the estate of the deceased. However, should you need to pay Inheritance Tax, the above details will help you file for it with the relevant authorities.

References:

Tax on property, money and shares you inherit: Joint property, shares and bank accounts – GOV.UK

Tax on property, money and shares you inherit

The comprehensive guide to inheritance tax | moneyfacts.co.uk

How Inheritance Tax works: thresholds, rules and allowances: Overview – GOV.UK

How to value an estate for Inheritance Tax and report its value

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