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Tax on property you inherit

13 July 2023

Inheriting property? Understand the tax implications with this comprehensive guide. Learn about Inheritance Tax, Stamp Duty, Income Tax, Capital Gains Tax, and more to help you make informed decisions to manage your inherited property tax efficiently.

When inheriting property, it’s essential to understand the tax implications associated with the inheritance. Generally, Inheritance Tax (IHT) is not directly levied on the beneficiary of the property. Instead, any IHT due is paid from the deceased’s estate before distributing cash or assets to the beneficiaries.

As of the current tax rules, the rate of IHT payable is 40% on the value of the deceased’s estate above the nil-rate band threshold, and 20% on lifetime gifts made within seven years of death. Certain assets, such as those left to charity, may qualify for a reduced rate of IHT.

Inheriting a property usually means that you won’t be liable for Stamp Duty, Income Tax, or Capital Gains Tax (CGT) at the time of inheritance. However, you may be subject to Income Tax on any profits or gains received or earned after inheriting the property. For instance, if you later decide to sell the inherited property and its value has increased, you might be liable for CGT on the capital appreciation. Additionally, if you rent out the inherited property, any rental income received will be subject to Income Tax.

Another consideration arises if you inherit a property that adds to your total property ownership, making you the owner of two properties. In such cases, you have a responsibility to inform HMRC about which property is your main residence within two years. This declaration is essential because it determines the availability of certain tax reliefs, such as Principal Private Residence Relief (PPR), which can significantly impact your tax liability.

It’s worth noting that handling inherited property held in trust can involve more complex tax rules and regulations. Depending on the terms of the trust, different tax treatments may apply, and professional advice is advisable in such situations.

To ensure full compliance with tax regulations and to make the most of any available tax reliefs or exemptions, seeking advice from a qualified tax professional is highly recommended. Understanding the tax implications of inheriting a property can help you make informed financial decisions and avoid unexpected tax liabilities in the future.

Source: HM Revenue & Customs Tue, 11 Jul 2023 00:00:00 +0100

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