What is capital gains tax?
Capital gains tax is the tax which you pay when you sell a property which has increased in value from the time you bought it and you have made a gain.
You don't have to pay capital gains tax when you inherit a property, however you will have to pay capital gains tax when you dispose of the inherited property and you have made a gain on it.
Will it be your Principal Residence?
If you have decided to live in the property that means it's considered your main home at the time of selling it and you can avoid paying Capital Gains Tax on its sale as you can qualify for Private Residential Relief.
What is considered your main home?
- If you have lived in a house as your main home for all the time you have owned it.
- If you have not bought it just to make a gain
- You have never used the house for commercial purposes
- The grounds are less than 5000 square meters
Will you Rent it?
If you have inherited a property another option that you will have is to rent it out.
If you sell the inherited property which you had been renting then you will pay capital gains tax on it.
How will you calculate the capital gains tax?
First you will have to calculate the gain. Incase of the inherited property you calculate the gain by deducting the selling price from the market value
You have an annual CGT allowance of £12 300. If the gain falls within this amount you won't be paying any capital gains. If it falls above it and you are a basic tax rate payer you will pay 18%on the residential property and 28% on any amount above the basic rate. Any Capital Gains will be added to
The couples can combine their CGT allowance so they can make a gain of £24 600 without paying any taxes.
When you inherit a property you can also decide whether you want to keep it in your name, transfer it to your children or you want to register it in the company's name.
If the property is registered in the company's name you will have to pay corporation taxes on the profits and any gains you make on selling the property. In many cases this reduces the overall taxes that you pay.
Each of the above situations have different tax implications, you may want to talk to your accountant to know what structure will be most tax beneficial for you.
There are different reliefs available . For example, if you are a business and you sell property to reinvest in the property you will be considered to be in the property business and you will qualify for a relief.
You can also reduce your overall tax bill If you transfer the inherited property to your spouse.You won't be paying any capital gains tax on such a transfer. This will also help you reduce your income tax bill incase you decide to rent that property you want to rent your inherited property you might benefit by transferring it to your spouse if they haven't used their personal allowance.
How to save money by paying the right taxes contact Taxaccolega, accountants in Croydon' and our team of accountants will be happy to help you.