Inheriting property might seem straightforward enough since the plans were likely drawn up many years in advance.
However, it’s often the case that those who inherit property aren’t walked through the obligations when it comes to the aspects they’ll now be responsible for. Capital gains tax is just one of the many elements that anyone who inherits property needs to be aware of.
Here is an overview of capital gains tax, including what it is and crucially if and when you’ll be required to pay it on any property you inherit.
What Is Capital Gains Tax?
Capital gains tax is a tax that is applied to certain assets when you sell them. The tax is based on the value increase from when you first acquired that asset to when you sold it, rather than the entire value of that asset.
Such assets include any asset worth more than £6,000, which may include cars, artwork or jewellery. As the most expensive asset any of us will likely ever own, property is also on the list. Though crucially, it applies to property that is not your first home.
You do not need to pay capital gains tax if the profit falls within your annual personal allowance, which currently stands at £12,570 at the time of writing.
Do I Need To Pay Capital Gains Tax On Inherited Property?
Strictly speaking, no you do not have to pay capital gains tax if you inherit a property. At least that is unless you sell the property for a figure more than the property was worth when you inherited it.
For example, if you inherit a home worth £250,000 and sell it a few weeks later for the same price, you won’t need to pay any capital gains tax.
However, if you decide to sell the property later down the line, there’s a good chance the value would have increased from the time which you acquired the property. You would then need to pay capital gains tax on the profit made on the value increase.
So if that same property sold for £300,000, the tax would be applied to the £50,000 profit made. Though, some fees such as solicitors fees can be deducted from the total amount.
Capital gains tax takes into account your tax band, and whether you’re an individual, trustee or business. The percentage rates vary between 10% and 28% depending on your status, with a capital gains tax calculator available on the GOV UK website.
If you are required to pay capital gains tax, then you must do so within 60 days of the property being sold.
Avoiding Capital Gains Tax When Selling An Inherited Home
Naturally, nobody likes paying tax! While we’d always advise consulting a financial advisor or an accountant on how to avoid capital gains tax, there are some ways to do so that are well within the law.
The first way is to sell the home promptly after you acquire it before it has had a chance to increase in value. The quickest way to do so is to use a home buying company such as ourselves, who will give you an offer within 3 working days. Skip ahead to the end of this post if you’re interested in wrapping things up quickly.
The second method is to nominate the property as your primary residence, meaning you will be eligible for private residence relief when you eventually do decide to sell the property. However, this will mean any other property you own would be subject to capital gains tax when you decide to sell it. So, while you’ll avoid capital gains tax on the property you inherited, you would still need to pay it on your other property. Unless your current residence is worth significantly less than the home you inherited or has decreased in value since the time you acquired the property (highly unlikely), it wouldn’t be worth it.
Therefore, the best ways of avoiding capital gains tax on a property you inherit are to make it your primary residence, or sell the property quickly to avoid paying tax on the value made from the time you inherited the property to the time you sold it.
Sell My Inherited Property
Don’t want to pay capital gains tax on a property you’ve inherited? We don’t blame you! That’s why we’ve created another way of selling your home through Cash Property Buyer.
As the name suggests, if your property meets our criteria, we’ll not only purchase your home, but we’ll give you a free valuation, won’t charge any legal fees and we’ll give you an offer within 3 working days!
Simply tell us your postcode along with some information about your property to get started. If your home meets our criteria, we’ll send you an offer within 3 working days.
Whether you’ve inherited a home or want to sell your existing home, please contact us today to see if it’s something we can help you with.