Do you need to pay inheritance tax on property

When someone passes away tax is charged on their estate which includes money, possessions and property.

In most cases the deceased’s estate will cover the tax liability, you may be required to pay if the estate will not or cannot cover the charges. You will need further advice from HMRC if the estate includes farmland or woodland.

Stamp duty or tax is not usually payable when inheriting property unless the beneficiary received more than £325,000 of non-exempted gifts from the deceased in the 7 years prior to the date of their death. Tax is payable on a tapering relief scale (maximum 40%) if the gift and date of death is less than 7 years.

Other possible exceptions can include:

If the deceased owed income tax or was due for a refund the beneficiary may have to ensure the correct amount was paid. Income tax may also be payable on profit earned from share dividends or assets that generate income e.g. rental property.

Capital gains tax may have to be paid if inherited property is sold, especially if there has been an increase in value during probate.

Inheritance tax would have to be paid if the property is valued above £325,000 and the beneficiary is not a civil partner, charity or community amateur sports club.

If you are a trustee holding a property in trust or the beneficiary of a “bare trust” you are responsible for paying the tax on income the trust receives.

 When is inheritance tax not payable

There is no inheritance tax levied against the estate if the value of the estate is less than £325,000 or everything was left to a spouse, civil partner, charity or community amateur sports club.

The tax liability is also reduced if an element (as specified at the time by HMRC) was left to charity.

Reporting income from inherited property

If the estate includes rental property that generates income this belongs to the estate and needs reporting to HMRC.

Jointly owned property

You would inherit anything owned together as a “joint tenant” (“joint owner” in Scotland). If you only owned part of the property the property shares will depend on your agreement. When a property owner dies land registry must be informed.

Selling an inherited property

If you have inherited properties HMRC must be advised which is your main home within 2 years of the inheritance. If you sell inherited property then capital gains tax may be payable and if the property is rented out tax may be payable on the income.

Note: every effort has been made to ensure the above information is correct at the time of this article going online, however, we recommend that you seek professional tax advice when reviewing your current tax and income position and future tax planning strategies.

If you are considering letting your inherited property get in touch with the team at Lockyers or call 01924 278222 to review your insurance.