Do You Pay Taxes On Inherited House?
Inheriting a house can bring unexpected tax obligations. Let’s examine the taxes you might face when inheriting property in the UK.
Table of Contents
Inheritance Tax on Inherited Property
Inheritance Tax (IHT) is the primary tax concern for those inheriting a house. Here’s what you need to know:
• The standard IHT rate is 40% on estates valued over £325,000.
• This threshold increases to £500,000 if you leave your home to children or grandchildren.
• Married couples can combine their allowances, potentially passing on up to £1 million tax-free.
The tax is usually paid from the estate before you receive your inheritance. However, you may be responsible for paying IHT on gifts made by the deceased in the seven years before their death.
Capital Gains Tax on Inherited Property
You won’t pay Capital Gains Tax (CGT) immediately upon inheriting a property. However, you may face CGT if you later sell the inherited house:
• CGT applies to any increase in the property’s value since the date of death.
• The tax rate depends on your income tax band: 18% for basic rate taxpayers, 28% for higher rate taxpayers.
• You can reduce CGT by using your annual tax-free allowance (£12,300 for 2023/24).
To minimise CGT, consider selling the property quickly or making it your main residence.
Income Tax on Inherited Property
Income Tax only becomes relevant if you decide to rent out the inherited property:
• You’ll need to declare rental income on your Self Assessment tax return.
• You can deduct allowable expenses from your rental income to reduce your tax bill.
• The tax rate on rental income depends on your overall income and tax band.
How to Reduce Taxes on Inherited Property?
Here are some strategies to minimise your tax liability:
- Use the Residence Nil Rate Band if applicable
- Sell the property quickly to avoid CGT
- Make the inherited property your main residence
- Donate a portion of the inheritance to charity
Do I have to pay tax on money inherited from my parents?
You don’t pay tax on inherited money itself. However, the estate may have paid Inheritance Tax before you received your inheritance.
How long do you have to live in an inherited house to avoid capital gains tax?
There’s no set time you must live in an inherited house to avoid CGT. If you make it your main residence immediately and sell it later, you may qualify for Private Residence Relief on the entire gain.
What is the 7 year rule in inheritance tax?
The 7-year rule refers to gifts made by the deceased. If they survive for 7 years after making a gift, it becomes exempt from Inheritance Tax. If they die within 7 years, the gift may be subject to IHT on a sliding scale.
Can HMRC find out about inheritance?
Yes, HMRC can find out about inheritance. Executors must report the estate’s value to HMRC, and banks and other institutions may also provide information.
Inheritance Tax Thresholds
Here’s a table showing the Inheritance Tax thresholds for 2023/24:
| Threshold Type | Amount |
|---|---|
| Basic Nil Rate Band | £325,000 |
| Additional Residence Nil Rate Band | £175,000 |
| Combined Total for Individuals | £500,000 |
| Combined Total for Couples | £1,000,000 |
Remember, these thresholds may change in future tax years.
Sell Your Property Fast: No Hassle, No Fuss with Property Saviour
Selling your property through traditional methods can be a frustrating experience. Estate agents often promise quick sales but fail to deliver, leaving you waiting for months with no progress. Auctions may seem like a fast solution, but they come with their own set of risks and uncertainties.
Property Saviour offers a refreshing alternative. As genuine cash buyers, we can complete your sale in as little as 10 days, with no hidden fees or last-minute price reductions. Our transparent process eliminates the stress and delays associated with chains, mortgage approvals, and unreliable buyers. We’ll even contribute £1,500 towards your legal costs.
Why not find out how much we could offer for your property? Request a call back today and speak to one of our friendly team members. We’re here to provide a hassle-free solution tailored to your unique circumstances. Let Property Saviour take the headache out of selling your home.
Property Saviour Price Promise
- The price we’ll offer is the price that you will receive with no hidden deductions.
- Be careful with ‘cash buyers’ who require a valuation needed for a mortgage or bridging loan.
- These valuations or surveys result in delays and price reductions later on.
- We are cash buyers. There are no surveys.
- We always provide proof of funds with every formal offer issued.
We'll Pay £1,500 Towards Your Legal Fees
- No long exclusivity agreement to sign because we are the buyers.
- You are welcome to use your own solicitor.
- If you don’t have one, we can ask our solicitors for recommendations.
- We share our solicitor’s details and issue a Memorandum of Sale.
Sell With Certainty & Speed
- Our approach is transparent and ethical, which is why sellers trust us.
- 100% Discretion guaranteed.
- If you have another buyer, you can put us in a contracts race to see who completes first.
- Complete in 10 days or at a timescale that works for you. You are in control.
