If you have inherited a house, you might be wondering if you need to pay tax when you sell it. The short answer is that it depends on several factors. In this article, we will discuss the tax implications of selling an inherited property in the UK.
The first tax consideration when inheriting a property is inheritance tax (IHT). Inheritance tax is a tax paid on the estate of a deceased person, and it is paid by the estate before the assets are distributed to beneficiaries. If the value of the estate is below the IHT threshold of £325,000, no tax is due. If the estate is worth more than this, the excess is taxed at a rate of 40%.
It is important to note that the value of the inherited property is included in the value of the estate, so it could push the value of the estate over the threshold. However, there is an additional threshold for the main residence, which currently stands at £175,000. This means that if the inherited property was the deceased’s main residence, its value can be added to the main residence threshold, potentially increasing the amount of the estate that is exempt from IHT.
Capital Gains Tax
The other tax consideration when selling an inherited property is capital gains tax (CGT). CGT is a tax on the profit made when you sell an asset that has increased in value. However, there is usually no CGT to pay when you inherit a property, as the value of the property is “reset” to its market value at the time of the deceased’s death.
If you sell the property shortly after inheriting it, you are unlikely to make a profit, so there will be no CGT to pay. However, if you hold on to the property for some time and its value increases, you may be liable to pay CGT when you sell it. The current rate of CGT for residential property is 28% for higher-rate taxpayers and 18% for basic-rate taxpayers.
It is worth noting that there are some exemptions and reliefs that can reduce the amount of CGT you have to pay. For example, if you have lived in the property as your main residence for a period of time, you may be eligible for private residence relief, which could reduce the amount of CGT payable.
Selling the Property
If you decide to sell the inherited property, you will need to go through the same process as if you were selling any other property. This involves getting a valuation, marketing the property, and negotiating with potential buyers. Here at sell my house swiftly we help and guide clients to sell their inherited houses.
If the property is jointly owned by multiple beneficiaries, you will need to agree on the sale price and how the proceeds will be divided. If the property is held in trust, you will need to follow the instructions in the trust deed regarding the sale of the property.
It is worth noting that if you sell the property within a certain period after inheriting it, you may be able to claim an exemption from CGT called “incidental costs relief”. This exemption applies to costs incurred in connection with the sale of the property, such as estate agent fees and legal fees. Read more here if you have to pay tax on selling an inherited property.
In conclusion, the tax implications of selling an inherited property in the UK depend on several factors, including the value of the estate, the type of property, and the length of time it has been held. If you are unsure about your tax obligations, it is always best to seek professional advice from a qualified tax advisor or accountant.