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Do you pay tax on inherited money in the UK?

  • 3 min read
  • Last updated 2 Apr 2024

If you’ve recently inherited some money, you may be wondering: do you pay tax on inherited money in the UK? 

If the person who died left you money or shares, in most cases you won’t have to pay any tax on this. However, if they’ve put you in their will, you might still have to deal with what’s known as Inheritance Tax

We’ve put together a round-up of everything you need to know about paying tax on inherited money in the UK below.

Do you pay tax on inherited money in the UK?

This depends entirely on the amount of money or possessions that were left to you. There are various ways in which a person can inherit money in the UK. You don’t usually have to pay any tax immediately, but you eventually might need to pay one of the following:

  • Inheritance Tax
  • Income Tax 
  • Capital Gains Tax

Let’s break each of these down:

Inheritance Tax

Inheritance Tax is a tax on someone’s estate after they’ve died. In other words, when a person dies, HMRC can impose a tax on their property, money or possessions. There’s normally nothing to pay if:

  • The value of the person’s estate is below the annual threshold (£325,000 in the 2024/25 tax year)
  • You’re the deceased’s spouse or civil partner and they left you everything
  • The deceased leaves everything above the threshold to a charity, a community amateur sports club, a political party or a museum

Be aware that if the estate’s value is below the threshold, you’ll still need to report it to HMRC.

How much is UK Inheritance Tax?

In the 2024/25 tax year, the standard Inheritance Tax rate is 40%, payable for most estates that are larger than £325,000. Here’s an example of how it works:

Your auntie names you in her will as her sole heir. The total value of her estate is £500,000.

The first £325,000 you recieve would be tax-free. You’d pay inheritance tax at the rate of 40% on the remaining £175,000.

As a result, you’d owe HMRC £70,000.

When does it need to be paid by?

You must pay Inheritance Tax within six months of your loved one’s death, otherwise HMRC will begin charging you interest. Usually, the tax will already be taken out of the inheritance when you receive it; the deceased will have appointed someone (an executor) to take care of this.

If the deceased had no will and you’re deemed the legal heir, you’ll have to designate someone to administer the estate.

Other taxes you might need to pay

Income Tax

You may have to pay Income Tax on profit you later earn from your inheritance. This can be dividends from shares (check out our Dividend tax calculator here), rental income from a property etc.  

Capital Gains Tax

Capital Gains Tax relates to any shares or valuable assets (like property/art) you have inherited from your loved one. You will have to pay this tax if you sell any inherited assets that have gone up in value since the person died. You can read more on how much tax you may be charged here.

Are there any exemptions?

One exemption to inherited money is what’s known as ‘exempted gifts’. You don’t have to pay Inheritance Tax on small gifts you make out of your normal income e.g. Christmas or birthday presents. 

You’re also not charged on gifts between spouses or civil partners. You can give them as much as you like during your lifetime, as long as they live in the UK permanently. 

All other gifts count towards the value of your estate. Anyone else you gift money to will be charged Inheritance Tax if you give away more than £325,000 in the 7 years before your death.

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