Tax on sale of an inherited property
Taxes aren’t typically due on any inheritance you receive when you receive it.
There may be a need to pay for:
- Income Tax on any profit you earn later through inheritance, for example, dividends earned from shares and rental revenue earned from a property
- Capital Gains Tax when you later decide to sell shares or an asset you have inherited
- Inheritance Tax
Inheritance Tax
An estate owned by the deceased typically pays Inheritance tax. You might be required to pay the tax when the estate cannot or isn’t able to pay it. There is a chance that you will have to pay Inheritance Tax for the gift that someone gave you during the seven years before their death and it is also possible to pay your inheritance in the event that your inheritance is placed into a trust but the trust isn’t able to pay. If the will states that the Inheritance Tax is to be paid out of the estate you’ve acquired then the executor, or the administrator of the estate will usually be the one to pay it.
HM Revenue and Customs ( HMRC ) will notify you if you require payment.
Shares and money
In the majority of cases, you don’t have to pay taxes on your money and shares if you inherit them.
Inheritance Tax
You could be required you pay tax on the inheritance of shares and money you receive if the deceased’s estate isn’t able to pay or doesn’t have the funds to pay.
HM Revenue and Customs ( HMRC ) will notify us if we need to pay.
Shares or money that a person gave to you prior to their death are referred to as gifts and are subject to specific rules.
Income Tax
You could be required to pay Income Tax on:
- the interest that you can earn from inherited funds
- dividends paid on shares you inherit
CGT on inherited shares
You’ll be required to settle capital gains tax If you decide to dispose of inherited shares that have appreciated in value after the individual has passed away.
Property
You do not have to have to pay Stamp Duty, Income Tax or Capital Gains Tax on the property you inherit when you acquire it. It is possible to be charged Inheritance Tax, if the deceased’s estate isn’t able to pay it. HM Revenue and Customs ( HMRC ) will notify us if we need to pay. The rules differ to those in Scotland.
Selling the property
You don’t have to pay Capital Gains Tax when you sell your house. However, you must pay it in the event of you making a profit after you sell it and it is not your primary residence. If the inheritance of a property implies that you own two houses you’ll need to name either one to be your primary residence. You’ll need to notify HMRC which property is your primary home for the next 2 years after taking possession of the property.
If you don’t inform HMRC if you sell one property, they’ll determine the property that was your primary residence.
The property can be rented out
You could be required to pay tax on the property’s rental income if you decide to rent it out.
Properties held in trust
If you inherit property from a trust, you’re the ‘beneficiary’ and trustees are the legal owners, and are responsible to pay tax on any income the trust earns. It is possible that you’ll be required to contribute tax on any income that you earn through your trust.
Bare trusts
In the event that the trust’s title is ‘bare trust’ you will have to take over the role of the beneficiary and the legal owner. You are accountable for tax on the income that the trust earns.
