Selling an inherited house can lead to tax obligations. The amount of tax you pay depends on several factors, including the property’s value and your personal circumstances.
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How Much Tax Do You Pay When Selling An Inherited House
When you sell an inherited house, you may need to pay Capital Gains Tax (CGT) on any profit made from the sale.
CGT is calculated on the difference between the property’s value when you inherited it and its selling price. You only pay tax on gains above your tax-free allowance.
The current CGT rates for residential property are:
- Basic rate taxpayers: 18%
- Higher and additional rate taxpayers: 28%
Here’s an example of how CGT is calculated:
| Description | Amount |
|---|---|
| Property value when inherited | £200,000 |
| Selling price | £250,000 |
| Gain | £50,000 |
| CGT allowance (2023/24) | £6,000 |
| Taxable gain | £44,000 |
| CGT at 28% (higher rate taxpayer) | £12,320 |
Inheritance Tax Obligation
Inheritance Tax (IHT) is usually paid by the estate before you inherit the property. However, if IHT is still owed when you sell the house, you may need to settle this from the proceeds.
The standard Inheritance Tax rate is 40% on the portion of the estate valued above £325,000.
Ways to Reduce Your Tax Bill
There are several ways to potentially reduce your tax liability when selling an inherited house:
- Use your CGT allowance
- Offset costs against your gain
- Claim Private Residence Relief if you’ve lived in the property
- Consider transferring a share of the property to a spouse or civil partner
Do I Need to Pay Tax If I Sell the House Immediately?
If you sell the inherited property immediately after inheriting it, you may not need to pay CGT. This is because the property’s value is unlikely to have increased significantly in a short time.
How Long Do I Have to Sell an Inherited Property?
There’s no time limit for selling an inherited property. However, if you decide to rent it out before selling, you may need to pay Income Tax on the rental income.
What If the Inherited Property Is My Main Home?
If you move into the inherited property and make it your main residence, you may be eligible for Private Residence Relief when you sell it. This could reduce or eliminate your CGT liability.
Do I Need to Report the Sale to HMRC?
You must report the sale of an inherited property to HMRC and pay any CGT due within 60 days of the completion date.
Can I Avoid Paying Tax on an Inherited House?
While it’s not possible to completely avoid tax on an inherited house, you can take steps to minimise your liability:
- Sell the property quickly before its value increases
- Use the property as your main residence
- Offset any losses from other asset sales against your gain
What If I Inherit a Share of a Property?
If you inherit a share of a property, you’ll only be liable for CGT on your portion of any gain when the property is sold.
How Does Probate Affect Selling an Inherited House?
You can’t sell an inherited property until probate is granted. This process can take several months, during which time the property’s value may change.
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