Do I have to pay Capital Gains Tax on an inherited property?

Inheriting a property is likely to be a complicated and emotional process, especially when there are a lot of decisions to be made and finances to sort. One issue that can be overlooked is Capital Gains Tax. So, what is Capital Gains Tax (CGT) and do you have to pay it?

The answer is yes - You must pay Capital Gains Tax if you decide to sell the property that you inherited, or a second home or buy-to-let property, in the future. If the property has increased in value since you inherited or bought it, then the Capital Gains Tax will be deducted from the profit. However, you generally do not pay Capital Gains Tax if you are selling your main residence.

When you have inherited a property, you will be subject to Inheritance Tax which is on average 40% of the value of the property, but should not to be mistaken for CGT.

As per the governments guidelines, basic-rate taxpayers will be subjected to pay 18% of CGT, while higher-rate taxpayers will pay 28% of CGT. And while all tax payers are entitled to an annual CGT allowance (£12,300 for the 2020 – 2021 tax year), allowing them to earn a certain amount tax-free, CGT will be included when working out your annual tax status and therefore could push you into a higher tax bracket.

As of the 6th April 2020, CGT on inherited properties, second homes or buy-to-let properties that you have sold, must be paid within 30 days of selling the property, otherwise you could face penalties and additional interest to pay, if the CTG is not reported or paid on time. Click here for more information.

Property owners are entitled to certain special rules that may excuse them from having to pay CGT, which include:

  • Selling the property to your civil partner, husband or wife (unless you have separated and have not lived together at the same property during that tax year, or you have given them goods for their business to sell on).
  • If you have gifted the property to a charity (unless you sell the property for more than you paid for it, or it is worth less than the current market value). 

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