So, you’ve inherited a share in a property from a parent who has died leaving a property with no dependants living in the property and you are wondering what the tax consequences are for you. There are 3 taxes you need to be aware of – inheritance tax, capital gains tax and income tax.
Inheritance Tax (IHT)
Any IHT should have been paid by the estate in which the property was left. The estate will be liable to pay IHT at 40% if the total value of the estate is more than £325,000. You may need to pay Inheritance Tax on any gifts that your parent may have given you in the 7 years preceding death. A gift can be anything of value (money, property, possessions) or a loss in value when something is transferred eg. if a parent sells a house to a child for less than it is worth. You may need to pay IHT if the estate can’t pay any tax that is due. You may have to sell the property to pay the tax.
Capital Gains Tax (CGT)
You don’t have to pay CGT on a property on inheriting it. However, if the property is sold then you will have to pay CGT at 18% on sale on any increase in value in the property since the date of death. Each individual person who has a share in the house will have an annual exemption, currently £11,100 that they can set against any gain on sale.
Income Tax (IT)
You don’t have to pay any IT on inheriting a property. However, if you decide to rent out the property then you will need to include any rental profit (rental income less expenses of rental) on your tax return. If you don’t already complete a tax return then you will need to notify HMRC of this new source of income.
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