This is because any Inheritance Tax (IHT) due should be paid out of the deceased’s estate before any cash or assets are distributed to the heirs.
However, the recipient is liable to income tax on any profit earned after the inheritance, such as dividends from shares and to capital gains tax on the increase in value on assets after the date of inheritance.
The main exception is if you received a gift during a person’s lifetime. These lifetime transfers are known as Potentially Exempt Transfers (PETs). These gifts or transfers achieve their potential of becoming exempt from IHT if the taxpayer survives for more than seven years after making the gift. If the taxpayer dies within 3 years of making the gift, then the IHT position is as if the gift was made on death.
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