Paying Tax on an Inheritance

[smurfchops]

A friend of mine has just come into some money from his uncle who died a year ago. Inheritance Tax has been paid. Does he have to pay tax on the amount of money he was left in the Will?

[-Zorro-]

Depends on various things.

His uncle may have agreed that the estate pay the tax not the receiver.

He may not have left a total to all beneficiaries which is above the exempt limit of �300k or whatever it is now.

The amount that goes into the taxable pot can be quite a complex calculation.

His uncle may have left most to his wife, which is exempt.

So if the amount left to all non exempt beneficiaries is less than the �300k exempt limit, then he wont have tax to pay.

More info is needed to answer this acurately, as its a complex area.

[dzug]

As you say inheritance tax has been paid, there will be no more for your friend to pay. All the palava that zorro describes has already been done and is now irrelevant to the situation.

Once he invests it he will of course be liable for tax on the interest, but he gets the capital without a tax liability

[smurfchops]

His uncle was a widower and the total of his estate was substantially more than 300k and it was divided between family members as per his Will, the Inland Revenue took approx 20% before the final account, which my uncle has just received. The solicitor asked him if he needed an income tax certificate for the purposes of his own tax return, which made him wonder if he has to pay tax on his 'cut' of the money.

[Barmaid]

The income tax certificate to which you refer will undoubtedly by a form R185 (Certificate of Estate Income). Assuming the deceased had income earning assets (ie bank/bs accounts, shares) interest will have been earned on this until the accounts closed. The income accrued at death but not credited (ie on an account where interest is credited monthly if interest is payable on an account on 1 September but deceased died on 15 August there will be interest accrued during August but not credited til 1 September) is deemed to be estate income. Further estate income will arise where the funds are invested on deposit during the course of the administration. The executors should do a trust and estate tax return and then should account to HMRC for the tax on the income. They then issue the beneficiaries with a form R185 which details the beneficiary's share of the income and the tax paid. Your friend can then submit the R185 with his own tax return and it may affect his tax position in terms of tax already paid.

[smurfchops]

Sorry you lost me there ... Can you answer a bit more simply for me? Thanks

[dzug]

Your friend may have received income from the estate as well as capital. That is, interest on the amount he was due to receive from the date of death until it was actually paid to him.

If so that income (but ONLY the income, not the capital) is taxable and should be declared on your friend's tax return if he has to do one. The executors of the estate should have paid the tax so he won't have to pay any more - except if he is a higher rate tax payer.

The form R185 will say how much income he received and how much tax was deducted from it - a bit like a P45 or P60.

Hope that's a bit simpler....

[Barmaid]

Sorry, not enough wine yet to slip out of lawyer speak. Thanks dzug for making it intelligible.

[smurfchops]

Thank you I understand a bit better now,. these things usually go straight over my head. My friend does not pay tax as he doesn't earn enough money to pay any, he only works part time and very rarely at that, and he doesn't get a Tax Return so what should he do with the R185? Thank you all so much for answering my question by the way.

[dzug]

He should send the R185 to the tax office requesting a refund on the grounds that his income is less than the personal tax allowance.

[smurfchops]

Thanks again. What would we do without Answerbank ?? !