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★Capital Gains Tax on Inherited Property
Posted on: 22nd August 2018 | Filled under: How to Sell a House
Written by: Mark King
Capital gains tax when selling an inherited property
Selling an inherited property can be one of the most stressful experiences of any person’s life. Along with the usual stress that is associated with selling a property, putting an inherited property on the market will likely conjure up many additional emotions. On top of all this, sellers of inherited property are often surprised to find that they are liable to pay capital gains tax on the profits of the sale of the inherited property.
Inheritance tax versus capital gains tax
The reason many people are surprised to receive another tax bill after selling their inherited property is because they have likely paid some kind of tax on it already. However, if you have already paid tax on the inherited property, it is likely to have been inheritance tax. Inheritance tax is payable when you inherit the home and can be up to 40 per cent of the value of the property when you inherited it, depending on various allowances.
Capital gains is the tax that you pay on any profit you make on the selling the property that is above its value when you inherited it. If you did not make any profit on the sale in addition to its value when you inherited it, you will not have to pay capital gains tax.
An example of how capital gains tax works
If your inherited property was worth £300,000 when you inherited it and you also sold it for £300,000, you would not have made a profit. You may even have made a loss, as you will likely have also had to pay for legal fees and estate agent fees. In this instance, no capital gains tax would be due. This is because capital gains tax only applies to profit made when selling property.
On the other hand, if the property was valued at £300,000 when you inherited it and you later sold it for £400,000, you would have to pay capital gains tax on any profit that you will have made. How much this amount of tax is depends on a number of factors, and there are various allowances and deductions that you can use to lower the final capitals gains tax bill. These can help you make sure you receive the maximum inheritance possible.
Deductions against capital gains tax
Before you can be issued with your final capital gains tax on your inherited property sale, you will need to submit all of your deductions, so that the exact amount of profit you have made can be worked out. The types of deductions and allowances that you can take on an inherited property are detailed below. When accounted for correctly these will maximise your inheritance and lower any capital gains tax.
Legal and estate agency fees
Eligible deductions include any fees that you have had to pay in order to inherit the property or to sell it. Examples of eligible fees include legal fees such as hiring a solicitor, appointing a surveyor or even getting a valuation. When selling the property, if you appointed an estate agency, you can also deduct its fees from the profit. Throughout the process of both inheriting and selling the property, you must make sure you keep all receipts associated with costs incurred – as they will save you money later on. Without proof of fees, you won’t be able to use them as deductions against your capital gains tax. With this proof, you will be able to reduce the amount of capital gains tax payable.
Home improvements
If you have made significant improvements to your home in order to get it to a saleable standard, you can also deduct the cost of this from your profit. Again, you should keep all your receipts and invoices. Home improvements include vital repair works, installing an upgraded kitchen or bathroom, having the property redecorated and installing central heating or double glazed windows. If you have simply replaced a bathroom with one of a similar standard out of preference, you won’t be able to deduct its cost; the work carried out must either be repairs or upgrades that add to the inherited property’s value.
Personal allowance
Everyone has a personal allowance on their annual earnings of £11,300 (for the current tax year), which is not eligible for capital gains tax. Depending on your income, this may or may not make a difference to the amount of capital gains tax you pay on the sale of your inherited property.
How much capital gains tax do you pay?
Let’s say you inherited a property that was valued at £300,000 at that time. A couple of years later, you sold it for £400,000, leaving a potential profit of £100,000. However, you also paid £1,000 in legal fees when you inherited it and paid £1,000 in legal fees when you sold it. You paid £4,000 to an estate agent and you spent £5,000 on home improvements. Your total costs were, therefore, £11,000, leaving you with £89,000 profit. Minus your personal allowance of £11,300, this leaves you with a taxable profit of £77,700.
The amount of capital gains tax you pay on this £77,700 will then depend on your annual income, including that of the profit of the inherited house sale. You pay 0% tax on the first £11,300 of your income, 18% on the next £33,500, and 28% on anything over that amount. For further info, you can use the government’s capital gains tax calculator.
Inherited property sales the easy way
Inheriting a house can come at any time in your life. Perhaps you live in a different town or even a different country. Or perhaps you are not in the position to carry out expensive repairs or improvement work before selling the property. For many people, the person they have inherited the property from is someone who they were very close to – typically a family member – and dealing with the added stress of putting their house on the market can be too much of an emotional toll, when navigating the inheritance and capital gains taxes associated with an inherited property sale. For other people, the inherited property may come from a distant relative, or someone they didn’t know very well, so it can be an unexpected and useful source of extra cash.
Whatever your situation, if you have an inherited property in the South Wales area, we can help you to sell the property quickly, painlessly and hassle-free. Mark King Properties specialises in buying houses for cash, regardless of their condition or type and, in many cases, can offer you up to 90 per cent of the property’s value.
We recognise that dealing with probate or inherited properties is an extremely delicate and sensitive issue. That is why, upon calling one of our friendly team, we will talk you through all the options when it comes to selling your property so that you can decide whether selling fast for cash is the right choice for you. This way you can be sure to receive expert advice and capital gains tax is accounted for when selling your inherited property.
No hassle, minimum stress
We have vast experience in buying properties for cash in South Wales, and therefore can help you to reach exchange of contracts in the timeliest fashion. Our property purchases can sometimes transact in as little as seven days, meaning that you can reach a conclusion on this stressful process as soon as possible. We work with the same network of solicitors and legal professionals – people that know us and our clients’ requirements inside out. We can also recommend legal professionals that our sellers often use – with the main aim of making selling your inherited property as seamless as possible.
Advice on capital gains tax
We can help you to keep your capital gains tax bill to a minimum. In addition to this guide, we can provide free, impartial advice on how to reduce your final tax bill, so that you can come away with the maximum amount of your inheritance. Upon selling your inheritance property to us, we will work with you to identify all of the costs that you may have incurred when you took on the property. We work with inheritance properties on a regular basis, so are familiar with all of the deductions you may be able to include. This can help you get the most from your inherited property while paying the least in capital gains tax.
Less paperwork, less time
Selling an inherited property is a more complicated process than a regular house sale – partly due to the amount of paperwork required. Sales can often be lengthy, depending on several factors, such as how many people the estate has been left to, any instructions in the will of the deceased, and working out how much capital gains tax is payable. Mark King Properties can help to keep your costs to a minimum when selling, and will not let aspects such as the condition of the property or any damage add to the amount of time it takes the sale to go through. We will deal with everything related to the condition after we have bought the property – there is virtually no issue that is too much for us.
Free valuation and capital gains advice
Our service is simple and easy to use. Just get in touch with us to tell us a little about your circumstances and the property you have inherited. We can then arrange a completely free valuation, after which we will tell you how much cash we can pay you for your property. We will also work with you to help you understand capital gains tax as it relates to your inherited property, and how you can save money. You’re under no obligation whatsoever to sell your home to us following our valuation – we understand that, particularly with property sales as sensitive as inheritance sales, you will want to take the time to decide the best option for you and your family.
If you are looking for a quick house sale Mark King Properties can make you a cash offer today. We Buy Any House regardless of condition. The no.1 Sell House Fast service in South Wales.
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