Do I Have To Declare Inheritance To HMRC?

It's one of the most common worries after probate: a large sum lands in your account and you assume HMRC will come knocking. In reality, the person who dealt with the tax was the executor — and by the time you receive the money, that side is usually already done.

What you do need to think about is what happens next.

Here's what most people don't realise

Inheritance Tax and Income Tax are two entirely different taxes. The estate handles the first before you see a penny. What HMRC cares about from you is the second — what the money does after it arrives.

So the £80,000 that lands in your bank account is not taxable. But the £3,200 of interest it earns over the following year probably is.

The key situations — when you tell HMRC and when you don't

What the estate has already dealt with

Before the executor distributes anything, they must:

• Value the estate — property, savings, investments, personal possessions.
• Report the estate value to HMRC (form IHT400 or IHT205).
• Pay any Inheritance Tax due (40% on anything above the £325,000 nil-rate band, or £500,000 where a home passes to direct descendants).
• Receive clearance from HMRC before distributing to beneficiaries.

By the time the money reaches you, this side is complete. If you want to understand the thresholds in more detail, see our guide on how much you can inherit tax-free in the UK.

What you need to declare — the three most common cases

1. Interest on the money in your bank account

Once the inheritance is sitting in a savings account, any interest counts as your income. The Personal Savings Allowance lets basic-rate taxpayers earn £1,000 a year interest tax-free (£500 for higher-rate, £0 for additional-rate). Above that, tax is due.

Banks report interest directly to HMRC. If you're on PAYE, your tax code is usually adjusted automatically. If you're on Self Assessment, you must include it on your return.

2. Dividends and capital gains on inherited investments

If you inherit shares, funds or an investment portfolio, dividends above £500 per tax year are taxable. If you later sell those investments for more than their value on the date of death, Capital Gains Tax may apply on the profit.

3. Selling an inherited property

The property's "base cost" for CGT is its value at the date of death — not what the deceased originally paid. If you sell for more than the probate value, you have 60 days to report and pay any CGT. See our dedicated guide on how to reduce CGT on inherited property.

Common mistakes

• Assuming you have to declare the lump sum. You don't. The estate has already handled it.
• Forgetting about interest. A £150,000 inheritance sitting at 4.5% earns £6,750 a year — well above the Personal Savings Allowance. HMRC will notice, even if you don't file.
• Missing the 60-day CGT deadline on property. Penalties start immediately after the deadline, regardless of how small the gain.
• Not keeping the probate paperwork. If HMRC or your bank ever query the source of funds, the grant of probate and executor's letter answer it in one email.
• Ignoring foreign inheritances. The lump sum isn't taxable in the UK, but the moment it earns interest here it enters the UK tax system.

An example scenario

Emma inherits £120,000 from her father's estate. The executor has already paid £14,000 of Inheritance Tax before Emma receives her share.

• Emma does not declare the £120,000 to HMRC.
• She moves it into a savings account paying 4.4% — earning around £5,280 in the first year.
• Emma is a basic-rate taxpayer, so £1,000 is tax-free under her Personal Savings Allowance. The remaining £4,280 is taxed at 20% — £856.
• HMRC receives the interest report from the bank and adjusts her tax code the following year. Emma does not need to file anything separately unless she's already on Self Assessment.

Total tax on £120,000 inherited: £856 in the first year — none of it on the inheritance itself.

Top 5 risks to be aware of

1. Interest creep. Larger inheritances quickly outgrow the Personal Savings Allowance. Cash ISAs and NS&I products shelter some of this — see using an ISA for inheritance money.
2. Missing the 60-day CGT window. If you sell inherited property, the clock starts on completion — not on probate.
3. Assumed clearance. If the estate is later reassessed by HMRC, beneficiaries can (rarely) be asked to return part of a distribution. Keep the executor's final accounts.
4. Overseas complications. Some countries tax the beneficiary, not the estate. If you inherit from abroad, check both sides.
5. Benefits and means-tested support. HMRC isn't the only body that cares — the DWP does too. See how inheritance affects benefits.

What this means for you

For most beneficiaries, receiving an inheritance is not a tax event. There's nothing to file, no form to submit, and no immediate obligation to HMRC.

Your real tax work starts the day after the money arrives — choosing where to hold it, whether to use tax wrappers, and how to keep the interest inside your allowances. That's a planning decision, not a reporting one.

What people regret later

The most common regret isn't a missed declaration — it's leaving a large inheritance in a standard savings account for years, generating taxable interest that could have been sheltered inside an ISA or premium bonds. A small amount of planning in the first three months typically saves hundreds or thousands over the following years.

Simple next steps

1. Keep a copy of the grant of probate, executor's letter, and estate accounts. File them where you'd find bank statements.
2. Note the "probate value" of any inherited investments or property. This becomes your CGT base cost if you later sell.
3. Check your Personal Savings Allowance — £1,000 for basic-rate, £500 for higher-rate.
4. Move short-term money into an FSCS-protected, tax-efficient account. See where to put inheritance money safely.
5. If you're already on Self Assessment, add any interest, dividends, or gains to your next return. If not, HMRC will usually adjust your tax code automatically.
6. For estates near the tax thresholds or complex portfolios, an FCA-regulated adviser can be worth a one-off conversation — see speak to an adviser.

Where this fits in the bigger picture

Understanding what HMRC needs (and doesn't need) is one small part of handling an inheritance well. For the full framework, see the pillar guide on what to do with an inheritance. If tax is your main concern, our guide on whether you pay tax on inheritance in the UKcovers the estate side in depth.

Published January 2025 · Last reviewed August 2026