What is Capital Gains Tax on Inherited Property?

Capital Gains Tax is defined as the tax on the chargeable gain or profit on the disposal of an asset, for example when you complete a sale or dispose of a large asset. The tax is on the gain you make rather than the actual money you receive from the disposal or sale. There are some assets or possessions that are exempt from Capital Gains Tax – such as your car and items disposed of for less than £6000.

How Does Capital Gains Tax Work?

When someone dies the value of their estate is worked out for Inheritance tax and then, subject to various reliefs and exemptions Inheritance tax is paid if the value of the estate is over the available nil-rate band threshold.

If at the moment of death the deceased owned an asset which was worth more than when it was bought, then you might think there would be capital gains tax to pay when it was disposed of by passing to the person the asset is left to in the Will.

Actually what happens is that the value at date of death for probate of the asset is used to work out if any Inheritance tax is due but no capital gains tax is paid.

The person receiving the asset inherits it with a capital gains tax ‘cost’ value equivalent to the asset’s probate value or value at date of death. The technical term is that there is a tax free uplift in the cost value to date of death value.

If the person receiving the asset later sells it then capital gains tax will be calculated on the difference between the date of death value and the sale value.

Property for Business

There may be some relief on Capital Gains Tax if the property you’re selling has been, or could be, used for business. This includes farm buildings on agricultural land, shops, factories and warehouses or furnished holiday lettings.

If you’re trading in property and using it as a career – buying and selling houses for a profit – you will likely be liable to pay Income Tax rather than Capital Gains Tax in this situation.

If you have inherited property that qualifies for relief then special rules apply.

More Information – What Can be Done

Capital Gains tax is complicated and this article only highlights some very general points. There are lots of details you need to be aware of before taking action or omitting to take action. You must take detailed advice specific to your circumstances.

If you’d like more information, our Trust, Wills and Probate solicitors here at Burt Brill & Cardens can point you in the right direction and offer comprehensive advice.

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