Do You Pay Tax on an Inheritance UK (2026)? Income Tax, CGT & IHT Explained

No — there is no income tax liability on the lump sum you receive as an inheritance. Inheriting money, property, or other assets is not a taxable event for the beneficiary under UK income tax law. The inheritance itself is not 'income' for self-assessment purposes and you do not need to declare it on your tax return simply because you received it. Any income you earn from the inherited assets after you receive them — interest on inherited cash, rent on an inherited property, dividends from inherited shares — is taxable in the normal way in your hands from the date you become the owner. The tax position is completely different from the estate's position: the executor pays income tax on income generated by the estate during the administration period, but that obligation belongs to the estate, not to you.

No — receiving an inheritance is not a disposal for CGT purposes. You do not pay CGT when you inherit assets. Your CGT base cost is set at the probate value (market value at the date of death) under section 62 of the Taxation of Chargeable Gains Act 1992 — all pre-death gain is wiped out. This 'uplift' is one of the most valuable features of inheriting assets compared to receiving a lifetime gift. CGT only becomes relevant if you later sell or dispose of the asset. When you do sell, the gain is calculated from the probate value to the sale price; you pay CGT on that gain at 24% (higher rate) or 18% (basic rate) for residential property, or 20%/10% for other assets such as shares, in 2026/27. You can deduct improvement costs and selling expenses. If you inherit a main residence and use it as your own home before selling, private residence relief may reduce or eliminate the CGT.

Inheritance tax (IHT) is a tax on the estate — the total of everything the deceased owned — and it is paid by the executor from estate assets before you receive your inheritance. You, as a beneficiary, do not pay IHT on what you receive (unless the will specifically directs that your gift is 'subject to IHT' rather than 'free of IHT', in which case the estate deducts IHT before paying you). IHT is charged at 40% on the value of the estate above the nil-rate band (£325,000 frozen to 2030), rising to a combined threshold of £500,000 for a single person whose home passes to direct descendants (the residence nil-rate band), or up to £1,000,000 for a married couple combining both transferable nil-rate bands. The practical result is that most estates below these thresholds — particularly those without property — pass to beneficiaries entirely free of tax. Where IHT is due, it reduces the estate before distribution; what you receive is the net amount after tax.

The inheritance itself does not need to be declared on your self-assessment tax return. However, three situations require action: (1) If the executor provides you with an R185 Estate Income form, you must include the estate income shown on it in your self-assessment return for the relevant year. The R185 shows gross income, basic rate tax already paid by the executor, and the net amount paid to you. If you are a higher-rate taxpayer, you will owe additional tax; if you are a non-taxpayer, you can reclaim the basic rate tax paid. (2) If you receive income from inherited assets in subsequent tax years — interest, rent, dividends — that income must be declared in the normal way. (3) If you sell inherited assets and realise a chargeable gain, you must report and pay CGT: within 60 days of completion for UK residential property (via HMRC's online service), or via self-assessment for other assets.

If the deceased was domiciled in the UK, IHT applies to their worldwide estate — including assets abroad. The estate pays UK IHT, and you receive the net amount. If the deceased was domiciled outside the UK, UK IHT only applies to UK-sited assets; the overseas estate may be subject to the equivalent tax in the deceased's country of domicile. As a UK-resident beneficiary receiving foreign assets, you do not pay UK income tax when you inherit them. If you later receive income (rent, interest, dividends) from inherited foreign assets, that income is taxable in the UK if you are UK-resident. If the overseas country imposes an inheritance or estate tax, that cost is borne by the estate in that jurisdiction — not by you personally unless you are specifically assessed. Some double tax treaties between the UK and overseas jurisdictions reduce or eliminate dual taxation of the same estate. Tax advice from a specialist with cross-border expertise is essential for substantial international estates.

When you sell an inherited asset, CGT applies to the gain above the probate value. For UK residential property sold by a UK resident: report the gain within 60 days of completion and pay CGT at 18% (basic rate) or 24% (higher rate). For shares and other non-residential assets: report via self-assessment and pay at 10% (basic rate) or 20% (higher rate). The annual CGT exempt amount is £3,000 in 2026/27 — deduct this from your total gain before calculating the tax. If you inherit a property, use it as your only or principal home for a period, and then sell, you can claim private residence relief for the period of your occupation; the period of the estate administration before you took possession is treated as a deemed disposal to you at probate value so no pre-death gain counts against you. If the property falls in value between the probate date and the date of sale, you may be able to claim loss relief.

Yes — you can give away inherited money or assets, but whether the gift is tax-free depends on what you give. Giving away cash: no CGT, no income tax, no immediate IHT. The gift is a potentially exempt transfer (PET) for IHT purposes — fully exempt if you survive 7 years from the date of the gift. If you die within 7 years, the gift is brought back into your estate for IHT, with taper relief applying if you survived 3 or more years. Giving away inherited shares or property: if the value has increased above the probate value by the time you give them away, you trigger a CGT disposal at the current market value even though you received no cash. You could use holdover relief (for gifts to discretionary trusts or qualifying business assets) to defer the CGT. Gifts to your spouse or civil partner are always CGT-free. Lifetime gifting exemptions — the £3,000 annual IHT exemption, £250 small gifts, normal expenditure out of income — all apply in the normal way to gifts you make from inherited funds.