Do I Pay Capital Gains Tax on an Inherited House?

Capital Gain Tax

Inheriting any property can be a fairly complex process, particularly if the death of a loved one is involved. After all, there’s so much to sort out after a loved one is gone, and many issues can get overlooked, creating some problems down the road. One of those issues for many is the inherited property CGT or Capital Gains Tax. Ask yourself, “Do I have to pay CGT on an inherited property?” Actually, yes. CGT on inherited property is quite common throughout the UK, and understanding how it works is key to getting this tax handled promptly.

Who Must Pay Capital Gains Tax on Inherited Property?

If you decide to sell any property, you must pay capital gains tax – on inherited property, on the property you bought as a second home, or even on a property you bought as a buy-to-let arrangement. No matter what the type of property, capital gains must be paid on it. When you don’t pay capital gains tax on inherited property is when that property is your main residence. While you may have to pay that in some cases, for most people, capital gains will never be part of the equation when you’re actually selling your property.

Is Inheritance Tax and CGT the Same Thing?

You may be quite familiar with inheritance tax, but less familiar with capital gains tax on inherited property. It’s important to note that the two are not the same thing. Capital gains tax on an inherited property only affects you when you sell the property. Inheritance tax, however, runs about 40% of the property’s value, and you’ll pay that when you actually inherit it. You may end up paying more tax – like capital gains tax on inherited property – if you inherit it then turn around and sell it.

How Much is Capital Gains on Inherited Property?

Most basic rate taxpayers will pay 18% capital gains on inherited property. If you are a higher-rate taxpayer, though, you can expect to pay 28% capital gains on inherited property. In 2020, new legislation went through Parliament that said capital gains on an inherited property must be paid within 30 days of selling the property. Should you fail to pay your capital gains on inherited property within that time frame, you could face financial penalties and added interest costs.

How to Avoid Capital Gains Tax on Inherited Property

There are times when you can avoid capital gains from inherited property. You will not pay capital gains on an inherited property sale if you are selling the property to your husband, wife, or civil partner. You can also avoid capital gains on an inherited property sale if you choose not to sell it but gift it to a charity instead. There’s one more answer to the question “How do I avoid capital gains tax on inherited property?” It’s if you decide to move into that property and make it your main residence. At that point, you qualify for “Private Residence Relief.”

Paying Capital Gains Tax and Inheritance Woes

If you’ve recently received an inheritance in the form of a property, and you’re asking yourself, “Do you pay capital gains tax on inherited property,” unfortunately, the answer is yes. You do have to pay capital gains tax on a deceased estate that you inherited, but there are a couple of ways to avoid it. Chat with a solicitor to learn more about what you can do to avoid CGT and reap the benefits of the property you inherited.

We are proud members of...

  • NAPB
  • RICS
  • The Property Ombudsman
  • Trading Standards

We are proud to be the most regulated property buyer operating in the ‘Quick House Sale’ industry. We are an active member of the NAPB (National Association Of Property Buyers) and are RICS regulated, which means you can have every confidence of selling your home with us quickly & easily.