How Much Is Capital Gains Tax?

Written by Mathew McCorry

If you read my property blog now, that’ll be the end of it. I will not look for you, I will not pursue you. But if you don’t, I will look for you, I will find you and I will make you read it.

Sometimes inheriting a house can be an amazing asset. Not only could it provide you with somewhere permanent to live, it could also be considered a source of income if you decided to rent it out. However, in certain circumstances, it may seem more of a curse than a blessing and you might feel that selling it is your only option. There are certain taxes involved in selling an inherited property and, for some, these can sometimes seem a bit overwhelming. We take a look at Capital Gains Tax (CGT) on an inherited property in this post and can, hopefully, clarify anything that is causing you stress relating to it.

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What Is Capital Gains Tax (CGT)?

Put simply, this is a tax on any profit you make when you sell or ‘dispose of’ a property. If a property has increased in value from the date the owner died to the time of sale, then you may be taxed. If the gain is less than £11,700 (true for the financial year 2018/2019) then you won’t have to pay tax, as this is considered the Annual Exempt Amount.

Capital Gains Tax Calculator UK

You should find out a property’s market value at the time of death of the owner and deduct this from the sale value. HM Revenue and Customs has a handy calculator to help you work this out here.

If I DO Have To Pay CGT, How Do I Pay It?

If you do have to pay Capital Gains Tax then you’ll need to report it to the ‘Report Capital Gains Tax’ service online by creating a Government Gateway account. If you’re self employed then you can report any CGT owed via your self-assessment tax return. You’ll need to upload relevant PDFs or Jpegs explaining how you worked out your CGT. HMRC will then check through all of this information and send you an email or letter outlining how much you’ll need to pay.

The tax year starts 6th April and finishes 5th April the next year, therefore you must report your CGT by 31st January after the tax year in which you made the gain, otherwise you could face a penalty. It is advised you consult an accountant or solicitor beforehand to make sure all of your details are accurate.

Once you’ve sold the property, you’ll need to fill out a ‘Post-transaction valuation check’ form.

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How To Avoid Capital Gains Tax UK

If you have owned the property for 5 years and have used it as your home for 2 of those years then you can avoid having to pay CGT. If you’re able to prove this then a single person can avoid tax on up to £250,000 worth of gain and a married couple, filing jointly, gets double that.

In short, you’ll only pay CGT if you inherit a property, but you already own one. This makes your inherited property a secondary property which is when CGT kicks in. You’ll need to declare to HMRC which property is your main residence. CGT will then be calculated depending on whether you decide to sell your home or the inherited property.

This post is meant purely as guidance. If you’re unsure whether you need to pay CGT then always check with HMRC or a financial specialist, such as an accountant or solicitor. If you fail to declare anything you could be accused of evading tax. If you’ve inherited a property and want to sell it quickly then we could buy it for a fair cash sum. Get in touch today to find out more.

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