If you’ve inherited property, you’re probably feeling both excited and perhaps a little apprehensive when you consider the tax responsibilities ahead. A big concern for many who inherit a property will be the matter of Capital Gains Tax – or CGT – and whether you might need to pay this on your inherited home. We’ll explain in this handy guide.
What is Capital Gains Tax?
Capital Gains Tax is the tax you’ll pay on the profit you’d make when selling an asset, such as a property, that’s increased in value. You’ll pay CGT on the value gain, which means the difference between what you purchased the asset for and the price it’s later sold at, rather than the total sale price.
Is CGT payable when I inherit a property?
No, you won’t need to pay CGT immediately, although it’s worth bearing in mind that if the estate exceeds £325,000, you may need to pay Inheritance Tax.
When would you pay CGT on an inherited property?
You’d only need to pay CGT if you were to sell or gift the property that you inherited at an increased value, so this will depend on how much the value has increased since you inherited it. The property will have been valued at the time of probate, so the gain, or profit you make, could indeed be subject to Capital Gains Tax. Evesham accountants, such as https://www.randall-payne.co.uk/services/accountancy/evesham-accountants, can help you to keep track of your finances and comply with the tax rules.
Here’s how to calculate it yourself:
Probate Value: £200,000 Sale Price: £250,000 Allowable Expenses: £5,000 Taxable Gain = £250,000 – £200,000 – £5,000 = £45,000
Your Tax-Free Allowance
In the UK, you can deduct a £3,000 tax-free allowance from the gain overall. So, in our example, if your gain is £45,000, your taxable gain would be £42,000. If you make a taxable gain, you must report this and pay the CGT to HMRC within 60 days of the sale.
Although it might seem complex, this guide should help you understand Capital Gains Tax.
