HMRC guide to Inheritance Tax & do you have to report it

Primarily, it's the executor or administrator of the estate who must deal with any HMRC inheritance tax issues. They are responsible for valuing the estate, completing the necessary tax forms, and ensuring any inheritance tax due is paid from the estate before assets are distributed to beneficiaries. 

If inheritance tax is due, the executor must report the estate's value to HMRC using forms like the IHT400 for estates above certain thresholds or where tax is payable. Even if no inheritance tax is due, some estates might still need to be reported, especially if they exceed certain limits or have complex conditions like trusts, gifts within seven years of death, or assets not solely in the UK.

As a beneficiary, you usually don't need to declare the inheritance itself to HMRC. However, you must report any income generated from inherited assets. For example, if you inherit property and decide to rent it out, the rental income would need to be declared. Also, dividends from inherited shares are taxable.

For smaller estates or those meeting specific criteria, such as estates under £1 million with no inheritance tax liability, you might not need to report to HMRC. These are known as 'excepted estates.' However, probate still requires some estate value reporting.

While inheritance isn't taxed at the point of receipt, selling inherited assets that have appreciated in value might trigger CGT. You'll need to report this if the gain exceeds your annual CGT allowance. 

Inheritance tax must be paid within six months from the end of the month in which the person died to avoid interest charges. 

Before payment, you need to obtain an inheritance tax reference number from HMRC, which should be applied for at least three weeks before you plan to make a payment. 

• Direct Payment Scheme (DPS) - DPS allows payment directly from the deceased's bank or building society account to HMRC. You'll need to fill out form IHT423 for each account used.  

• Telephone Bank Transfer or Online - You can pay from your own account or a joint account you held with the deceased. Remember to use the inheritance tax reference number as the payment reference.  

• Cheque - Although it's less common, you can pay by cheque, making it payable to HMRC and including the reference number on the back.  

• Instalments - For certain assets like land or unlisted shares, inheritance tax can be paid in ten annual instalments, but interest still accrues on the outstanding amount. 

Typically, inheritance tax is paid from the estate's assets. If there isn't immediate liquidity, consider selling assets or using the DPS.

If you're uncertain of the exact amount, you can make 'payments on account' before finalising the estate's value. This can reduce interest if you pay early but have paid too much. Also, you can claim a refund once probate is granted. 

Remember, probate can't be issued until inheritance tax is settled or at least partially paid if using instalments. 

If you're paying from an overseas account, you'll need to use specific HMRC bank details for international transfers.

The responsibility to report the estate's value and deal with inheritance tax generally falls to the administrator or executor of the estate. They will need to value the estate, handle any inheritance tax due, and report this to HMRC if necessary. 

If the estate's value exceeds the tax-free threshold of £325,000, the inheritance tax may be due. The executor will report this, not you, but it affects how the estate is distributed. 

If you inherit a property and decide to rent it out, you must declare the rental income on your self-assessment tax return. This could lead to income tax obligations. 

If you later sell the inherited property and it has increased in value since the date of inheritance, you might be liable for CGT on the gain. This would require you to inform HMRC via a self-assessment tax return if the gain exceeds your annual CGT allowance.

If the deceased gave you property as a gift within seven years of their death, it might be subject to inheritance tax, and this would need to be reported. 

If the inheritance involves trusts or if the estate is complex, more detailed reporting might be necessary. 

If the estate qualifies as an 'excepted estate,' which typically are estates under £1 million, the reporting requirements to HMRC might be less strict, but probate still requires some level of estate valuation disclosure.

If you sell a property that has been your main residence, you're generally exempt from CGT due to PRR. However, if you own more than one property and need to select which one is your main residence for tax purposes, you must inform HMRC. This nomination must be made within two years of any change in your property ownership structure. You can do this by writing to HMRC with the address of the property you wish to select. 

If you've moved, you should update your address with HMRC for general tax purposes, like PAYE or income tax, but this isn't directly about declaring a 'main home.' You can update this online or by using other methods described by HMRC. 

Local authorities need to determine which property is your main residence, but this is more about where you pay council tax rather than informing HMRC. However, discrepancies between where you're registered for council tax and your tax affairs might raise questions in a tax investigation. 

If changes in your life, like marriage, divorce, or significant income changes, relate to property, these might warrant informing HMRC, but this is more about updating personal details rather than declaring a main home.

If you're a non-UK resident selling UK property, you might need to clarify to HMRC which property is your main residence if it affects your tax liability or reliefs, especially under PRR.