If you inherit assets from a loved one after they pass away, you may be required to pay tax to the British government. Prestige Tax and Trust Services asks: do you pay tax on property inheritance?
Tax and inheritance
Under UK law, you do not usually pay tax on assets you inherit, when you inherit them. However, you may be required to pay income tax on any profit you later accrue from these assets, capital gains tax if you sell these assets later down the line, or under some circumstances inheritance tax. How does this apply to any property you inherit from a loved one after they have passed away?
Tax on property
You will usually not be required to pay taxes on property you inherit, when you receive said property. This applies to stamp duty, income tax and capital gains tax, but if the deceased’s estate cannot or will not pay inheritance tax, you may become responsible for this. The government’s tax department, HM Revenue and Customs (HMRC), will contact you if you are required to pay inheritance tax.
But does this still apply when you sell the property? If it is your home you are selling, you will not be required to pay capital gains tax, but you will have to submit this tax to HMRC if you accrue a profit when selling a property that is not your home. If you own two homes after inheriting a property, you will have to inform HMRC which is your primary residence within two years, or they will decide which property falls under this category.
In some instances, you may be required to pay taxes on rental income, when renting out a property you have inherited. Also if you inherit property contained in a trust, you will not be responsible for paying tax as you are its ‘beneficiary.’ The ‘trustees’ are its legal owners, so this responsibility falls to them. You may still have to pay tax on income you accrue from the trust. If the property you inherit was held in a ‘bare trust,’ you are both its beneficiary and legal owner, so you will be responsible for all of its tax obligations.
Prestige Tax and Trust Services
Therefore in some instances, you may be required to pay taxes on property you inherit, either at the time of inheritance or later down the line. You may want to enlist the help of experts such as Prestige Tax and Trust Services, to ensure you fulfil any applicable tax obligations effectively. Our team possess the experience and legal acumen needed to help you navigate tax inheritance issues.