Are investment bonds and gilts subject to inheritance tax?
Inheritance tax and SIPPs
Money invested in bonds in a SIPP is free of inheritance tax, and some withdrawals are subject to income tax when it is passed on to the beneficiaries.
- If the person who died was over 75, the beneficiaries will need to pay income tax on any withdrawals from the pension.
- If the person dies before age 75, then beneficiaries do not pay income tax on pension withdrawals.
Inheritance tax and ISAs
Bonds held within an ISA are subject to inheritance tax.
The surviving spouse will get a one-off extra ISA allowance, which matches the value of their spouse’s ISAs which means they can inherit their ISAs and treat them as if they were their own.
Bonds and bond funds held outside an ISA or SIPP are still subject to inheritance tax.
The standard inheritance tax rate is 40%. It is only charged on the part of an estate that is above the £325,000 threshold, although there are other allowances, including a transferrable nil rate band for widows or widowers and the main residence nil rate band (also transferrable for spouses), which may increase the threshold further and decrease the amount of inheritance tax due.
