Aibu most people don't know rental income is taxable?

The tax is paid from the cash left in estate not by those inheriting. But if let’s say it’s an asset (eg house) it may have to be sold to cover the tax.

Additionally if you are a 40% tax payer you only get relief for costs (such as interest) at 20%

Well, you've had it explained in more than one way by more than one person. If you are still failing to grasp it, I don't think there's anything anyone can do to help.

Surely people realise that all income is taxabl

Loads of people burble as though pensioners don’t pay tax either.

We have a small comfortable flat in Central London that we visit about once every three months to stay in overnight before an early flight. We should probably let it but can’t be bothered as the admin and rules and licenses and income tax and bollocks around renting it out mean we don’t bother. Not worth it. To make any profit to speak of we would have to charge market rent which is over £2200 pcm. I can’t imagine charging some poor bastard that then having to demonstrate to HMRC we basically don’t make a profit after fees. The paperwork alone is boring enough.

Luckily there’s no shortage of nice rental flats in London. What a great system.

So to simplify - the inheritance is 100 and IHT if 40 is paid on it. Leaving 60.

it goes to 6 different people who are all BRT so they pay 2 in tax and receive 8.

so overall the taxman has received 52%.

I'm struggling to understand why you think it’s reasonable? I could see your argument if you just don’t believe in inheritance and think it should be taxed at 100% but the mechanism you suggest just isn’t how tax works

Nope…still not convinced!

I’m guessing posters saying ‘the tax is already paid’ are expecting a large inheritance in the near future and mortified that anyone thinks they should pay tax on it!

You’re being incredibly obtuse.

Like a pp said, you may as well be saying an employee doesn’t pay tax because tax is taken off their pay before they receive it.

The estate being taxed is just taking the tax at source (the same as PAYE) and so that thresholds, rates etc can be applied correctly. If the estate was taxed AND the beneficiaries were taxed on inheritance received then that would be taxing the same money twice.

But the end result is exactly the same either way - same amount of tax paid, same amount of money received. Why does it matter?

I have a friend who inherited a flat and rented it out. She had always had paye income and it has not occurred to her it should be treated as income until I told her. HMRC have something called the Let property campaign for people to declare undisclosed rental income. She declared it and paid tax and interest so all sorted but the fact that hmrc runs this campaign makes me think there is a lot of undisclosed rental income out there, whether it is deliberate or not.

Because it's simpler to manage.

One estate, one tax calculation, and an appointed person responsible for dealing with it, vs numerous beneficiaries some of which may have no idea how to deal with tac on inheritance.

It makes much more sense for the taxman to tax the estate rather than the beneficiaries. And by principle, income isn't supposed to be taxed twice.

It amounts to the same thing.. Every individual gets paid from the estate after tax has been deducted. Just in the same way that employees get paid their wages after tax has been deducted.

But why should it be taxed twice?

im still not convinced… the beneficiary has not paid tax…the deceased estate paid it.

Yes so it’s taxed at source… but it’s still taxed. You stated you “never understood why inheritance isn’t taxed”!

The beneficiary doesn’t “get it tax-free” - as a simple example (thresholds and main residence rules etc put aside) if someone is bequeathed £1m in cash savings then they won’t receive the full £1m, because it will have had paid tax on it.

That's like saying wages/salaries aren't taxed, the tax is paid by the employer before the employee gets paid.

Unless he said ‘oh shit really? I’d better look into it’ then I suspect you are right!

??? How?

Id say he was lying. Its income end of.

I think a few accidental landlords who work on PAYE jobs may not realise.

Yeah, because it’s just been paid by the estate.

We don't pay tax on savings, rather the interest earned on the savings is liable to tax over a certain threshold, although not if the savings are held in an ISA.

Usually. But if someone dies within 7 years of making a lifetime gift and IHT due on the gift, it’s the recipient that’s liable to pay the tax and not the Estate. It’s something a lot of people don’t realise.

(sorry to derail the thread 🤣)

Well surely anyone who thinks about it would understand any income is taxable, be it from a job, investment or rent? You pay tax on savings above a threshold, you pay tax on pensions, who on earth thinks that rental income wouldn’t be? I’m a landlord, it’s my sole source of income, of course it’s taxed.

Land lording is an investment activity and as such the profit comes from the appreciation of the asset.
If you also are able make a profit from the rent that's the cherry on top of the cake isn't it.
It's still passive income, you don't have to actually work for the money, you just need to own an asset which others aren't able to afford and then they are forced to give you their wages so that they can have a roof over their head