Exploring Capital Gains Tax on Inherited Properties

Working out Capital Gains Tax can be difficult, especially when the situation is complicated due to inherited properties. 

Capital Gains Tax is a tax on the profit when you sell something that’s increased in value. While you don’t have to pay Capital Gains Tax if all your gains in a year are under your tax-free allowance or if the asset is exempt, inherited properties are subject to Capital Gains Tax. The Guardian recently explained the relief options available when paying Capital Gains Tax on an inherited property; we look at some of these below.

Private Residence Relief

If an inherited property is a genuine main residence, even if only for part of the time since inheriting it, it's possible to claim “private residence relief” (PPR). If a property has been a main residence for the whole ownership, the tax payable will be less than if the inheritance receiver had only lived there for part of the time.

Lettings Relief

You need to have genuinely lived in a property before or after it is rented out to receive lettings relief. Lettings relief can also reduce the amount of tax payable.

Deducting Costs

The Guardian article explains what is able to be deducted from your Capital Gains Tax bill, "You can deduct certain expenses when working out your gain. In your case you would take the selling price and deduct the value of the property when you acquired it (which is the probate value for your property but would be the purchase price if you had bought it) as well as your legal and estate agency fees. If you have spent money increasing the value of the property – adding an extension, for example – you could deduct those costs as well."

Declaring Capital Gains Tax

The article goes on to explains that if you pay income tax at 20%, you’ll pay Capital Gains Tax at 18%. However this rises to 28% if you pay tax at the higher rates. You will need to fill in a tax return in order to declare your gain to HMRC.