How to Avoid Capital Gains Tax on Inherited Property in the UK
Inheriting a property can be a bittersweet experience. On the one hand, inheriting a property can mean having a valuable asset handed down to you. On the other hand, inheriting a property can come with unexpected tax implications, such as capital gains tax.
Capital gains tax is a tax on the profits made from selling a property or any other asset. When a property is inherited, the value of the property at the time of the owner’s death is the starting point for calculating capital gains tax. If the property is sold for a price higher than its value at the time of inheritance, capital gains tax will need to be paid on the difference.
However, there are ways to avoid capital gains tax on inherited property in the UK. Here are some tips to keep in mind:
1. Claim Principal Private Residence Relief
Principal Private Residence Relief (PPR) can be claimed on a property that is considered the owner’s main residence. If the inherited property was the owner’s main residence, PPR can be claimed, which can reduce or even eliminate capital gains tax.
2. Claim Lettings Relief
If the inherited property was rented out, Lettings Relief can be claimed to reduce capital gains tax. Lettings Relief can be claimed for up to £40,000, or the amount of the gain made from the lettings portion of the property.
3. Transfer Ownership Before Sale
Transferring ownership of an inherited property to a spouse or civil partner before selling can reduce capital gains tax. This is because spouses and civil partners have their own capital gains tax allowance, which means they can each claim their own tax-free allowance when selling the property.
4. Time the Sale Carefully
Selling an inherited property at the right time can also reduce capital gains tax. If the property is sold within the same tax year as the owner’s death, any capital gains tax liability will be based on the value of the property at the time of inheritance. If the property is sold after the tax year has ended, the value of the property at the time of sale will be used to calculate capital gains tax.
In conclusion, inheriting a property can come with tax implications, but it is possible to avoid or reduce capital gains tax on inherited property in the UK. With some careful planning and forethought, you can ensure that you keep as much of your inheritance as possible.
2023-05-04 09:23:38
