Capital Gains Tax on Inherited Property

Inheriting a property can be an emotional and challenging experience. Alongside dealing with the administration of an estate, many beneficiaries are understandably concerned about the tax implications of receiving and eventually selling an inherited property.

One of the most common questions we receive is whether Capital Gains Tax (CGT) is payable when a property is inherited.

The answer is usually no. However, Capital Gains Tax may arise later if the property is sold for more than its value at the date of inheritance.

If the value goes up from probate you may have Capital Gains Tax to pay.

Is There Capital Gains Tax When You Inherit a Property?

Generally, there is no Capital Gains Tax to pay simply because you inherit a property.

Instead, any potential tax liability usually falls under Inheritance Tax rules before the estate is distributed.

Once the property has been transferred to the beneficiary, the property's market value at the date of death becomes the starting point for any future Capital Gains Tax calculation.

When Does Capital Gains Tax Become Payable?

Capital Gains Tax may arise when the inherited property is eventually sold.

The gain is normally calculated as:

Sale proceeds

Less:

Value at the date of death

Less:

Allowable costs and selling expenses

The resulting figure represents the capital gain that may be subject to tax.

An Example

Suppose you inherit a property valued at £250,000.

Several years later you sell the property for £320,000.

Assuming there are no significant allowable costs, the gain would be approximately £70,000.

It is this increase in value after inheritance that may be subject to Capital Gains Tax.

The original purchase price paid by the deceased is generally irrelevant when calculating the beneficiary's gain.

What Costs Can Reduce the Gain?

A number of costs may be deductible when calculating Capital Gains Tax, including:

• Estate agent fees

• Solicitor's fees relating to the sale

• Certain capital improvements made to the property

• Survey and valuation fees in some circumstances

Routine repairs and maintenance are generally not deductible for Capital Gains Tax purposes.

The distinction between repairs and capital improvements can be important and professional advice should be sought where significant expenditure has been incurred.

What If Several Beneficiaries Inherit the Property?

Where a property is inherited jointly, each beneficiary is normally treated as owning their share separately.

Each individual may be entitled to use their own annual Capital Gains Tax exemption (where available) and calculate their share of the gain independently.

This can significantly affect the overall tax position.

What If I Move Into the Property?

If you inherit a property and later occupy it as your main residence, some or all of the gain may qualify for Private Residence Relief.

The availability of relief depends on the specific facts and the periods during which the property was occupied.

This is an area where professional advice can often produce valuable tax savings.

You have less time than you think to calculate report and pay your capital gains tax.

Don't Forget the 60-Day Capital Gains Tax Return

If UK residential property is sold and Capital Gains Tax is payable, the disposal may need to be reported to HMRC within 60 days of completion.

Failure to meet this deadline can result in penalties and interest.

Many taxpayers are unaware of this requirement until after the deadline has passed.

How BH Taxation Can Help

Calculating Capital Gains Tax on inherited property is not always straightforward. Valuation issues, improvement expenditure, periods of occupation and ownership structures can all affect the final tax liability.

At BH Taxation, we can assist with:

• Calculating gains on inherited property

• Reviewing allowable deductions

• Assessing eligibility for reliefs

• Preparing 60-day Capital Gains Tax returns

• Completing Self Assessment tax returns

• Communicating with HMRC on your behalf

  
  

If you have inherited a property and are considering a sale, obtaining advice before contracts are exchanged can help ensure that all available reliefs and deductions are identified.

The information contained in this article is intended as general guidance only and should not be relied upon as professional advice. Individual circumstances will vary and specialist advice should always be sought.