No, you do not have to inform HMRC directly when you inherit money in the UK – the executor or administrator of the deceased’s estate handles all inheritance tax reporting and payment obligations before distributing assets to beneficiaries, though HMRC will contact you directly if you personally owe any inheritance tax.
Recent HMRC statistics reveal that inheritance tax receipts reached a record £7.5 billion during the 2023/24 tax year, representing a 5.6% increase from the previous year’s £7.1 billion. Currently, only 4% of UK estates face inheritance tax liability, but government projections estimate this will rise to 10% by 2030 as frozen tax thresholds combine with rising asset values to affect more families. With the nil-rate band remaining at £325,000 since 2009 while average house prices have increased by 82.7%, more bereaved families find themselves unexpectedly facing tax obligations.
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Understanding Your Role as a Beneficiary vs The Executor’s Responsibilities
The distinction between beneficiary and executor responsibilities often causes confusion during already difficult times. As someone who inherits money or assets, you’re relieved of most immediate HMRC reporting duties – this burden falls squarely on the estate’s personal representative.
The executor must complete form IHT400 within 12 months of death and before applying for probate when inheritance tax is due. They’re legally obligated to declare all gifts made within seven years of death, value all estate assets accurately, and pay any inheritance tax before distributing assets to beneficiaries.
However, your responsibilities aren’t entirely finished once you receive your inheritance. You become responsible for any ongoing tax obligations arising from inherited assets, such as income tax on rental properties or dividend income from shares.
When Will HMRC Contact You Directly About Inherited Money?
HMRC will reach out to you personally in specific circumstances that require your direct involvement rather than working through the estate’s executor.
Potentially Exempt Transfers (PETs)
If the deceased gave you substantial gifts within seven years before death, and these gifts exceed available allowances, you might receive correspondence about inheritance tax liability on those gifts.
Trust Arrangements
When inherited money is placed into trust arrangements that cannot or will not pay inheritance tax, HMRC may pursue beneficiaries directly for payment.
Executor Default
In situations where the personal representative couldn’t or didn’t pay inheritance tax before distributing assets, recipients become liable for the outstanding amounts.
Michael from Portsmouth’s Experience
Michael inherited his uncle’s buy-to-let portfolio worth £380,000 but discovered the executor had already distributed assets without settling a £22,000 inheritance tax bill. HMRC contacted Michael directly for payment, creating significant financial pressure. Property Saviour helped Michael sell inherited property quickly, providing the cash needed to resolve the tax liability while avoiding prolonged legal complications.
What Taxes Might You Face on Inherited Money After Receiving It?
While you might not face immediate inheritance tax reporting requirements, several other tax obligations can arise from your inheritance that require your attention and proper management.
| Tax Type | When Applied | Rate | Reporting Method |
|---|---|---|---|
| Income Tax | On profits from inherited assets | 20-45% (marginal rate) | Self Assessment |
| Capital Gains Tax | When selling inherited assets for profit | 10-28% (depending on asset type) | Self Assessment |
| Dividend Tax | On share dividends received | 8.75-39.35% | Self Assessment |
| Rental Income Tax | On property rental income | 20-45% (marginal rate) | Self Assessment |
Understanding these tax implications helps you plan effectively for your financial future. Income tax applies to any profits you earn from inherited assets – rental income from properties, dividends from shares, or interest from cash savings above your personal allowance.
Capital gains tax becomes relevant when you sell inherited assets for more than their probate valuation. However, if you inherit a property and live in it as your main residence for at least two years before selling, you won’t face capital gains tax on the sale.
Do You Need to Declare Inherited Money on Self Assessment Tax Returns?
Whether you must include inherited money on your self assessment depends on what happens after you receive it rather than the inheritance itself.
The inheritance money itself doesn’t count as taxable income for the year you receive it. However, any income generated from that inheritance – such as bank interest, rental income, or share dividends – must be declared on your tax return according to normal income tax rules.
You’ll need to register for self assessment if your total income from all sources exceeds £100,000 annually, or if you earn more than £2,500 from untaxed income including rental properties or significant investment returns.
How Long Do You Have to Report Income from Inherited Assets?
Time limits for reporting income from inherited assets follow standard self assessment deadlines, but understanding these timescales helps avoid penalties and interest charges.
You must register for self assessment by 5 October following the end of the tax year when you first need to complete a return. Online tax returns must be submitted by 31 January following the tax year end, while paper returns require submission by 31 October.
For rental income from inherited property, you must inform HMRC within six months of becoming a landlord, even if you haven’t received any rental payments yet. This requirement applies whether you inherited a property with existing tenants or decide to let it after inheritance.
What Happens If You Sell Inherited Property or Investments?
Selling inherited assets triggers specific tax considerations that differ from normal capital gains calculations, requiring careful record-keeping and proper valuation evidence.
Your capital gains calculation uses the asset’s value at the date of death as your base cost, not what the deceased originally paid. This “stepped-up basis” often reduces potential capital gains tax liability compared to the deceased’s original purchase price.
However, you’ll pay capital gains tax on any increase in value between the date of inheritance and the date of sale. Keeping accurate records of the probate valuation becomes essential for calculating any eventual tax liability.
Reddit Community Insights: Real Experiences
Property inheritors frequently share experiences about unexpected tax complexities on online forums. Many discover that executors bear significant personal responsibility for inheritance tax accuracy, leading to thorough estate investigations that can delay distributions.
One common concern involves gifts made before death – how would HMRC discover unreported gifts? The reality is that executors face legal obligations to investigate and declare all gifts within seven years, with serious personal consequences for failures. Bank records, property transfers, and family discussions often reveal gift histories during estate administration.
Another frequent discussion involves cryptocurrency inheritance complications, where volatile values and unclear loss relief rules create significant problems for beneficiaries and executors alike.
Should You Sell Inherited Property to Simplify Tax Obligations?
Deciding whether to retain or sell inherited property involves balancing emotional attachment against practical financial and tax considerations that affect your long-term financial wellbeing.
Keeping inherited property means ongoing responsibilities including rental income tax, capital gains tax on future sales, maintenance costs, insurance, and council tax. Empty properties still incur council tax and insurance costs while you decide their future.
Selling quickly eliminates ongoing tax obligations and converts your inheritance into liquid assets that might better suit your financial goals. Quick sales also avoid the emotional burden of managing property during grief while ensuring you receive fair value for your inheritance.
Property Saviour understands the emotional complexity of these decisions during difficult times. As a specialist property buying company offering guaranteed sales, we provide certainty and speed when families need to convert inherited property into cash quickly. Our compassionate approach recognises that property inheritance involves more than financial calculations – it’s about making the right decisions for your family’s future while honoring your loved one’s memory.
Skip the Estate Agent Headache – Sell Direct to Us
Selling a property can be a stressful and time-consuming process, especially when dealing with traditional estate agents and auctions. The conventional route often comes with a host of challenges, including lengthy sales processes, endless viewings, and hefty commission fees that eat into your profit.
The Drawbacks of Estate Agents
Estate agents, while seemingly a straightforward option, can present several issues:
- Commission Fees: Estate agents charge a percentage of the final sale price in fees, which can vary from 1% to 3.5% and increase or decrease with the price of the property.
- Inadequate Communication: Traditional estate agents often have poor communication, taking days or even weeks to respond to urgent queries.
- Sole Agency Agreements: If you use an additional estate agent before the period of sole agency ends, you may have to pay commission to both the new and original agent.
The Risks of Auctions
Auctions, while potentially quick, come with their own set of challenges:
- Limited Control: You have limited control over the final sale price and may not achieve the price you hoped for.
- Costs and Fees: Auctions involve costs and fees associated with the auction process, which can be high.
The Benefits of Selling to Property Saviour
In contrast, selling to a reputable cash house buying company like Property Saviour offers several advantages:
- Speed: We can complete the sale in as little as 10 days, providing a quick resolution for the estate.
- Certainty: Our process ensures a guaranteed sale, eliminating the uncertainty of traditional sales methods.
- No Fees: We don’t charge any fees, and our approach is ethical and discreet, guaranteeing 100% discretion and control over the sale process.
- Flexibility: We purchase properties in any condition and can accommodate complex situations, such as properties in need of repairs or legal complications.
Sell with certainty & speed
Property Saviour Price Promise
- The price we’ll offer is the price that you will receive with no hidden deductions.
- Be careful with ‘cash buyers’ who require a valuation needed for a mortgage or bridging loan.
- These valuations or surveys result in delays and price reductions later on.
- We are cash buyers. There are no surveys.
- We always provide proof of funds with every formal offer issued.
We'll Pay £1,500 Towards Your Legal Fees
- No long exclusivity agreement to sign because we are the buyers.
- You are welcome to use your own solicitor.
- If you don’t have one, we can ask our solicitors for recommendations.
- We share our solicitor’s details and issue a Memorandum of Sale.
Sell With Certainty & Speed
- Our approach is transparent and ethical, which is why sellers trust us.
- 100% Discretion guaranteed.
- If you have another buyer, you can put us in a contracts race to see who completes first.
- Complete in 10 days or at a timescale that works for you. You are in control.
