Tax on inherited property – a guide

If you inherit and sell on a property, capital gains tax is another important tax consideration.

To find out more about our approach to tax planning, learn about our personal tax planning services. To read more about inheritance tax, take a look at our guide to inheritance tax planning.

Do you pay capital gains tax on inherited property?

Yes, if you inherit a property and go on to sell it at a profit, you will have to pay capital gains tax on the profit you make.

If you inherit a property in a will, the property will be given a value on the date of its owner’s death – this is known as market value or probate value.

From the moment you inherit a property, its value can grow and, if you choose to sell it, capital gains tax is due on the profit you make – this is the amount you sell it for over the probate value.

For example, if the property was worth £300,000 when you inherited it, and you go on to sell it for £350,000, you will pay capital gains tax on the £50,000 profit you’ve made.

Do you pay inheritance tax on jointly owned property?

Inheritance tax is payable on property being passed on in a will, whether the property is singularly owned or jointly owned.

If one of two joint owners of a property passes away, their share of the property will automatically pass to their surviving co-owner. Inheritance tax on the property is payable upon the death of that co-owner, when the property is passed on in their will, and it will be paid for out of their estate.

Who pays inheritance tax on jointly owned property?

If a married couple co-owns a property and, for example, the husband passes away, his share of the property will pass to his wife. There is no inheritance tax payable on this transaction because it is subject to spousal exemption.

The full value of the property – the wife’s original share and what was the husband’s share – will then all become part of the wife’s estate. This is known as inheriting by survivorship.

The wife’s estate will be subject to inheritance tax in the event of her death, when the property’s ownership is passed on. If the couple had children, they may choose for them to inherit the property. This example of inherited property split between siblings is common and the wife’s estate would cover the inheritance tax payable.

How to avoid inheritance tax on a property

If you’re wondering how to avoid inheritance tax on a property, our team’s guidance is not to avoid, but to plan for exposure to tax. Timely, careful tax planning can help to mitigate the impact of inheritance tax, and the right solution will look different for every person, family and estate.

There are various options to consider, and our advice would be to discuss your circumstances with our inheritance tax specialists to formulate the most appropriate tax plan.

Advice on inheritance tax and property

If you have a question about tax on inherited property, please get in touch, or find out more about our personal accountant services.