Introduction: Inheriting Wealth — But at What Tax Cost?

Inheriting from a loved one can be an emotional and often life-changing event. While the focus is usually on family and legacy, the less sentimental side—tax—shouldn’t be ignored. Many people assume that once something is left to them, that’s the end of the story. Unfortunately, HMRC often has a chapter or two to add.

The UK doesn’t shy away from taxing inheritance. In fact, with inheritance tax potentially as high as 40%, it's one of the more aggressive systems in the world.

So what happens when you inherit property, money, or shares? Are you taxed straight away? Is there property tax involved? And what smart steps can you take to legally reduce your liabilities?

Let’s break it down, plain and simple.

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Inheritance Tax in the UK: The Basics

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First things first: Inheritance Tax (IHT) is not paid by the person receiving the inheritance—it's paid out of the deceased’s estate before the assets are distributed.

Here’s what you need to know:

• Inheritance Tax is typically charged at 40% on the value of an estate over £325,000 (the “nil-rate band”).
• There’s an additional £175,000 “residence nil-rate band” if a home is left to direct descendants (like children or grandchildren).
• Gifts made within seven years of death may also be included in the taxable estate.

Pro Tip: If the total estate (including property, cash, and investments) is under the combined nil-rate thresholds, there may be no inheritance tax at all.

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Tax on Inherited Property: What You Need to Know

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Let’s say you inherit a house or flat—does that mean a property tax bill is coming?

The good news:

You don’t pay Stamp Duty or Capital Gains Tax (CGT) when the property is passed to you through inheritance.

The not-so-good news:

• If the estate is over the IHT threshold, the value of the property contributes to the total taxed amount.
• If you sell the property later and its value has increased, Capital Gains Tax may apply on the profit made since the date of inheritance.
• If you rent it out, you’ll owe income tax on the rental earnings.

Example: If you inherit a home worth £500,000 and later sell it for £550,000, you may owe CGT on the £50,000 gain—unless you lived in the home as your primary residence, in which case Private Residence Relief may apply.

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Money and Bank Accounts: Cash Isn’t Always Tax-Free

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Receiving money from an inheritance sounds straightforward, but there are some things to keep in mind.

• The cash itself isn’t taxed when you receive it—IHT is paid by the estate, not you.
• If you invest the money, any interest, dividends, or capital gains are taxable.
• If you’re named as a beneficiary of a trust, things can get a bit more complex, especially with discretionary trusts or offshore funds.

Be mindful: Once inherited money is in your account, it’s yours—and anything you do with it going forward (saving, investing, gifting) can have future tax implications.

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Shares and Investments: Inheritance Meets the Market

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Inheriting shares or investment portfolios? Here’s how it typically works in the UK:

• The value of the shares at the date of death is included in the estate for inheritance tax purposes.
• When you inherit them, there’s no immediate tax to pay on receiving the shares.
• However, if you sell them later and their value has increased, Capital Gains Tax may apply.

Important: HMRC uses the value on the date of death as your “acquisition cost.” This becomes crucial when calculating gains or losses if/when you sell.

Also:

• Any dividends you receive after inheriting shares are considered taxable income.
• If the investments are in a tax-advantaged wrapper (like an ISA), you don’t inherit the ISA benefits—they die with the account holder.

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Conclusion: Inheritance Doesn’t Have to Be a Taxing Experience

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Dealing with inheritance in the UK can feel like navigating a minefield of rules and exceptions—but with the right knowledge (and a good accountant), it doesn’t have to be overwhelming.

Whether you’re inheriting property, money, or shares, the key is understanding

• When inheritance tax applies
• What other taxes might come into play (like capital gains or income tax)
• And how to stay compliant without paying more than your fair share

If you're handling an estate or expecting an inheritance and want clarity on your tax position, speaking with a qualified accountant is one of the smartest moves you can make.

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Want Help Navigating Inheritance Tax?

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We help individuals across the UK reduce stress—and tax bills—when managing estates and inheritances. If you have recently inherited property or are planning for the future, get in touch with us today for a free, no-pressure consultation.