Inheritance and Tax: Understanding IHT on Gifts and Estates

Individuals who have inherited property, money, or shares or those planning to make lifetime gifts who want to understand how Inheritance Tax (IHT) applies. Consulting a tax advisor Wimbledon can help ensure compliance and minimise unexpected IHT liability.

This guide explains the tax treatment of inherited assets and lifetime gifts, including Potentially Exempt Transfers (PETs) and gifts with retained benefit. Understanding these rules is crucial for effective estate planning.

Tax on Inherited Assets

Generally, an individual who inherits property, money, or shares is not liable to pay tax on the inheritance itself. Any IHT due should already be paid out of the deceased’s estate before assets are distributed. However, recipients may still be responsible for:

• Income taxon profits earned after inheritance, such as dividends from shares

• Capital gains tax on increases in asset value after the date of inheritance

Working with accountants Wimbledon ensures that all post-inheritance tax obligations are handled correctly.

Potentially Exempt Transfers (PETs)

Lifetime gifts are treated differently from inheritances received on death. These transfers are known as Potentially Exempt Transfers (PETs). Key points include:

• PETs may become exempt from IHT if the donor survives more than seven years after making the gift

• If the donor dies within three years of the gift, IHT applies as if the gift was made on death

• Tapered relief may reduce IHT if death occurs between three and seven years after the gift

• Insurance products, such as seven-year term assurance policies, can be used to offset potential IHT if the donor passes away within seven years of gifting

Professional advice from a strategic tax advisory Wimbledon can help plan PETs effectively and reduce potential liabilities.

Gifts with a Reservation of Benefit

Gifts are more complex when the donor retains a benefit from the asset. A common scenario is giving away a house while continuing to live in it rent-free. These are known as gifts with reservation of benefit. Important considerations:

• Such gifts may remain liable for IHT even if the donor survives more than seven years after making the gift

• Placing inherited assets into a trust can also trigger IHT if the trust cannot or does not pay the tax due

Proper estate planning with tax advisors Wimbledon can help structure lifetime gifts to avoid unintended IHT consequences.

Navigate Inheritance and Tax Obligations with Expert Guidance from Cigma Accounting

Inheritance can create complex tax responsibilities, including Inheritance Tax, Capital Gains Tax, and Income Tax, and mistakes in planning or reporting can lead to unexpected liabilities. At Cigma Accounting, we assist individuals and families across Farringdon, Moorgate, and Angel in understanding and managing these obligations with the support of a trusted tax accountant in London.

Whether you are planning your estate, reviewing inheritances, or ensuring compliance with HMRC rules, professional advice ensures tax liabilities are minimised and reliefs are applied correctly. Cigma Accounting provides tailored inheritance tax planning London to help clients manage wealth transfer efficiently while protecting estate value, with physical offices across London.