Do you pay tax on inheritance in the UK? What beneficiaries need to know

Do you pay tax on inheritance in the UK?

Usually not at the moment you receive it. GOV.UK's guide to tax on property, money and shares you inherit says you do not usually owe any tax at the time you inherit, because the personal representative, meaning the executor or administrator, normally pays any inheritance tax out of the estate before passing your share on.

Tax can still arise afterwards, as Income Tax on interest or rent the inheritance earns once it is yours and as Capital Gains Tax if you sell something for more than it was worth at the death, whilst inherited pensions follow their own rules and in a few situations HMRC can ask a beneficiary to pay inheritance tax directly. Neither Inheritance Tax nor Capital Gains Tax appears among the taxes the Scottish Government lists as devolved, so these rules apply across the UK, although Scottish taxpayers pay Scottish Income Tax rates on some income.

Who pays inheritance tax, the estate or the beneficiary?

The estate normally pays. GOV.UK's overview of how inheritance tax works says the executor pays HMRC from the estate's funds, with tax normally charged at 40% only on the part of the estate above the £325,000 threshold and usually nothing due on what passes to a spouse, civil partner or charity. The threshold can rise to £500,000 where a home is left to children or grandchildren and the estate is worth less than £2 million, which our guide to the inheritance tax threshold explains. The tax is due by the end of the sixth month after the death, and some usually has to be paid before probate is granted, so it is normally settled before anyone receives their share.

Within the estate, unless the will says otherwise, tax on UK assets passing under the will comes out of what is left after the specific gifts, so a friend left £5,000 receives the full £5,000 whilst the residuary beneficiaries see a smaller share, as our guide to the residuary estate explains.

GOV.UK gives examples of when HMRC may come to a beneficiary directly: where the person gave you a gift in the 7 years before they died, where your inheritance went into a trust that does not or cannot pay the tax, and where the personal representative could not or did not pay before passing the inheritance on. For gifts, GOV.UK explains that once gifts in those 7 years exceed £325,000, the people who received them pay the tax on the excess, which our guide to the 7 year rule covers alongside taper relief.

Is inheritance money taxable as income?

The inheritance itself is not, but what it earns once it is yours can be. GOV.UK says you may owe Income Tax on interest from inherited money, dividends on inherited shares and rent from an inherited property, because that income is now yours.

Allowances absorb some or all of it for many people. GOV.UK's page on how much savings interest is tax-free sets the Personal Savings Allowance at £1,000 for basic rate taxpayers, £500 for higher rate taxpayers and nothing for additional rate taxpayers, with up to £5,000 of interest also tax-free under the starting rate for savings where your other income is below £17,570. The dividend allowance for 2026/27 is £500. Banks report interest to HMRC after each tax year and HMRC usually sends a tax calculation if anything is owed, whereas rent is yours to declare, with the first £1,000 covered by the property allowance and a Self Assessment return needed once rental profit exceeds £2,500 or rental income before expenses exceeds £10,000.

Income Tax on savings and property income rises from 6 April 2027, when the Finance Act 2026 sets basic, higher and additional rates of 22%, 42% and 47%, and HMRC's policy paper of 29 October 2026 proposes raising these to 24%, 44% and 49% through the Finance Bill 2026-27, which is not yet law (Scotland and Wales can set their own rates on property income). A large inheritance earning interest or rent outside an ISA is likely to cost more in tax from then.

What about income the estate earns before you receive your share?

The personal representatives deal with tax on income the estate receives while it is being administered, and a residuary beneficiary is then taxed on their share of that income when payments reach them, with credit for the tax the estate has already paid. HMRC's R185 (Estate Income) form is the statement executors and administrators use to tell beneficiaries about income from the estate, and GOV.UK says it shows the Income Tax already paid and that you will need it for a Self Assessment return or a repayment claim.

The figures go on the Trusts etc pages of a tax return, which HMRC's notes say you send without the R185 itself. Since 6 April 2024, personal representatives have not had to report or pay tax on estate income under £500 a year, and beneficiaries are then not given an R185 or taxed on that amount, so a smaller estate may never produce one.

Do you pay Capital Gains Tax when you sell something you inherited?

Only if it has gone up in value since the person died. HMRC's helpsheet HS282 treats you as acquiring the asset at its market value on the date of death, with any value already settled for inheritance tax used as that figure, so your gain is measured from it rather than from what the person originally paid and growth during their lifetime is not taxed on you.

The annual tax-free allowance is £3,000, and for 2026/27 gains above it are taxed at 18% where they fall within the basic rate band and 24% above it. You do not normally pay Capital Gains Tax when you sell your own home, and GOV.UK says that if inheriting a property leaves you owning two, you must tell HMRC within 2 years which one is your main home. Tax due on selling UK residential property must be reported and paid within 60 days of completion. Our guide to Capital Gains Tax on inherited property works through the calculation.

Is an inherited pension taxed?

It depends mainly on how old the person was when they died. GOV.UK's guide to tax on a private pension you inherit says that where the person died before 75, most lump sums are tax-free unless they exceed the person's lump sum and death benefit allowance, and an annuity or money from a drawdown fund first accessed from 6 April 2015 is normally tax-free too. Where the person was 75 or over, the provider deducts Income Tax from lump sums and from annuity or drawdown payments, and a pension paid to you by the scheme itself, such as a dependant's pension, is taxed whatever the person's age. Scottish taxpayers pay Scottish rates on this income.

GOV.UK's guidance still says a lump sum becomes taxable where the person died under 75 and it is paid more than 2 years after the provider was told of the death. HMRC's Budget policy paper of 28 October 2026 says that limit will be removed for payments made from that date, but this depends on the Finance Bill 2026-27 and is not yet law, so ask the provider how it will treat a late payment.

Inheritance tax on pensions changes for deaths on or after 6 April 2027, although until then GOV.UK says a lump sum does not usually bear inheritance tax because the provider chooses who receives it. HMRC's technical note on inheritance tax on pensions explains that, under the Finance Act 2026, most unused pension funds and death benefits will then count towards the estate, with death in service benefits and dependants' scheme pensions excluded and the spouse, civil partner and charity exemptions kept. The personal representatives report and pay the tax, but once the scheme decides a benefit is yours you become jointly liable with them for the tax on it, and you can require the scheme to pay that tax straight to HMRC if it is at least £1,000 and the scheme still holds enough. Where Income Tax is also due on the benefit, the part that goes on inheritance tax does not count as your taxable income. Our guide to what happens to a pension when someone dies covers the wider steps.

What happens to tax on an inherited ISA?

An ISA keeps its tax-free status for a while after the death, but it still counts towards the estate for inheritance tax. GOV.UK says no Income Tax or Capital Gains Tax is due on the account until the executor closes it, the administration of the estate is completed or 3 years and 1 day pass from the death, whichever comes first.

A surviving spouse or civil partner can also claim an additional permitted subscription, which is an extra ISA allowance on top of their own, worth the higher of the ISA's value at the death or its value when it stopped being a continuing account. HMRC's guidance for ISA managers on additional permitted subscriptions says the couple must have been living together and not separated when the person died, that cash must be paid in within 3 years of the death or, if later, within 180 days of the administration being completed, and that ISA providers do not have to accept these payments. Other beneficiaries receive the money outside an ISA, so later interest or dividends are taxed in the usual way unless they use their own £20,000 ISA allowance for 2026/27. Our guide to what happens to an ISA when someone dies sets out the steps.

Do you pay UK tax on an inheritance from abroad?

UK inheritance tax on the estate of someone who lived abroad applies only to their UK assets, and for deaths after 5 April 2025 GOV.UK treats a person as based abroad if they lived in the UK for fewer than 10 of the previous 20 years. Where both the UK and another country tax the same assets, the executor may be able to reclaim tax under a double taxation treaty. Once the money or assets are yours, GOV.UK says UK residents normally pay UK tax on foreign income, so interest or rent from an inherited overseas account or property usually goes on a Self Assessment return, with relief possible if it is taxed abroad too.

Does an inheritance affect benefits, and do you need to tell HMRC?

An inheritance can reduce or stop means-tested benefits. GOV.UK's guidance on Universal Credit and savings counts an inheritance as capital that you must report as soon as you receive it, with savings under £6,000 ignored, payments reduced by £4.35 for every £250 between £6,000 and £16,000, and usually no entitlement above £16,000 (nidirect gives the same limits for Northern Ireland). Pension Credit is not affected by savings of £10,000 or less, but every £500 above that counts as £1 a week of income. Knowingly reducing your capital to get or increase Universal Credit counts as deprivation of capital, so you can be assessed as though you still had the money, although paying off debts or buying reasonable goods and services does not count.

HMRC is different, because there is usually nothing to declare on the inheritance itself and HMRC will contact you if any inheritance tax falls on you, so what you may need to report is the income it produces.

What to do next if you have inherited money or property

1. Ask the executor whether the inheritance tax has been paid in full and whether any of it falls on your share or on gifts you received in the 7 years before the death.

2. Keep any R185 the estate gives you, because you will need its figures for a tax return or a repayment claim.

3. Note the date-of-death value of anything you inherit other than cash, since that figure sets any Capital Gains Tax when you sell.

4. Check with the pension provider how an inherited pension will be paid and taxed, particularly if the person was 75 or over.

5. Report the inheritance straight away if you claim a means-tested benefit such as Universal Credit.

None of this can be finalised until the executor knows the full value of the estate, because the inheritance tax bill and each beneficiary's share both depend on every account and debt having been found. The person's everyday accounts, such as energy, phone, broadband and subscriptions, also need closing or transferring, and if you would rather not contact each company yourself, Legacy Trail's free notification service notifies them on your behalf.