Beneficiaries do not normally pay tax on things they inherit. Inheritance tax, where any is due, is worked out on the whole estate and paid by the person dealing with it before anything is handed on, so most people receive their inheritance tax-free (gov.uk, tax on things you inherit, as at July 2026, subject to change).
There are a few exceptions where the person inheriting can become liable, and there are separate taxes, chiefly income tax and capital gains tax, that can arise after you inherit rather than on the inheritance itself. This guide separates the two and shows where a beneficiary's own tax position comes into play. It forms part of our wider Inheritance Tax Explained guide, and sits alongside our estate planning guide. Figures are current as at July 2026 and subject to change.
Who pays inheritance tax, the estate or the beneficiary?
The estate pays. The personal representative, an executor named in the will or an administrator where there is no will, settles any inheritance tax from the estate's funds before distributing what is left. Beneficiaries do not normally pay tax on things they inherit, so a cash gift or a share of the residue usually arrives with the tax already dealt with (gov.uk/inheritance-tax, as at July 2026, subject to change).
Inheritance tax is charged only where an estate exceeds the available tax-free bands. The nil-rate band is £325,000 per person, an extra residence nil-rate band of up to £175,000 may apply where a home passes to children or grandchildren, and tax is charged at 40% on value above the combined bands, or a reduced 36% where at least 10% of the net estate goes to charity (gov.uk/inheritance-tax, as at July 2026, subject to change). Many estates fall within the bands and pay nothing, so their beneficiaries receive everything intact. For how the estate settles the bill, see how inheritance tax is paid.
When might a beneficiary have to pay inheritance tax?
In a few situations the liability can reach the person who inherited, rather than resting with the estate. HMRC sets out three main cases where a beneficiary may have to pay inheritance tax themselves, and each turns on the facts (gov.uk, tax on things you inherit, as at July 2026, subject to change).
| Situation | Why the beneficiary can be liable |
|---|---|
| A gift within 7 years of death | Where the person who died gave you a gift in the 7 years before they died and the estate cannot cover the tax on it. |
| Inheritance held in trust | Where your inheritance is put into a trust and the trust does not or cannot pay the tax due. |
| Tax unpaid on distribution | Where the personal representative could not or did not pay before you received your inheritance. |
Source: gov.uk, tax on property, money and shares you inherit, as at July 2026, subject to change.
The gift case is the one people meet most often. Lifetime gifts can fall outside the estate if the giver survives 7 years, but where total gifts in that period exceed the £325,000 threshold, tax can fall on the gift, and the person who received it may become liable for that tax (gov.uk, rules on giving gifts, as at July 2026, subject to change). Because this depends heavily on dates and amounts, it can be worth discussing with a qualified professional.
Income tax and capital gains tax after you inherit
Even where no inheritance tax touches you, other taxes can arise once assets are in your hands. Inheriting an asset is generally not itself an income tax or capital gains tax event, but what you then do with it can be. HMRC notes that after you inherit you may have to pay income tax on any profit an inheritance earns, and capital gains tax when you sell something you inherited (gov.uk, tax on things you inherit, as at July 2026, subject to change).
- Income tax. You may owe income tax on income an inherited asset produces after you inherit it, such as rental income from a property or dividends on shares (gov.uk, money and shares you inherit, as at July 2026, subject to change).
- Capital gains tax. You may owe capital gains tax if you later sell an inherited asset for more than its value at the date of death, for example shares that have risen since (gov.uk, money and shares you inherit, as at July 2026, subject to change).
- Inherited property. Selling a property that is not your main home may bring capital gains tax on any profit, and rental income from it can be taxable (gov.uk, property you inherit, as at July 2026, subject to change).
The personal representative may give you an R185 (estate income) form showing income tax already paid during the administration, which matters when you report your own position (gov.uk, money and shares you inherit, as at July 2026, subject to change). Where an inheritance is substantial or produces income, many people choose to take advice from an accountant or tax adviser.