Whether you are the owner of an inherited property or any other kind of property, there is always the involvement of tax laws when you are a resident of the UK. Handling tax matters efficiently will save you from paying extra in the form of tax payments in this regard. Especially when an individual comes under the higher tax band, most likely the scenario will make them fall for paying a lot of amount in the inherited property tax. In many cases, this happens because the main inherited house has increased its market value since the period of inheritance and now you will have to deal with paying more tax on it. This will make you wonder how to avoid CGT on inherited property.
However, this comprehensive guide is designed according to your need for awareness about the basics of capital gains tax and what are the possible circumstance that can help you to avoid the capital gains tax on the inherited property at the time of selling since the market value has increased.
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What is Capital Gains Tax?
As per the definition of the government in the UK, “CGT is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value. Moreover, this explains that the difference in market value from the moment you received the property to the point of selling is considered to be taxed by the tax authority. Let us take the instance of a property that was bought in the amount of £10,000 and was sold on profit with an amount of figure £15,000. The capital gains tax is always applicable on the amount of profit which is £5,000.
The CGT Rates and When You Must Pay?
There are several queries that are regarding the property when it comes to paying the capital gains tax. Whether you own a property that is not considered the main house, you will have to pay tax on it. And also to pay tax on the main property as well. However, this has specific criteria. If you’re finding ways to avoid paying tax on your property that is used for business purposes, a property that was let out, or a large house, it will be quite a challenging process for you.
How Much Will I Pay in Capital Gains Tax?
There will be several online calculating options when it comes to searching for the calculation of how much you need to pay in the form of capital gains tax. Mostly the primary formula of these online calculations is similar in all cases. You will be required to know the exact figure of your income in this regard. Then you will have to get the idea of whether you come under the basic rate or the higher tax rate. This will help you to get an estimate of the capital gains tax to pay for your kind of property.
Avoiding Capital Gains Tax on a Property Sale
After the realisation of how much capital gains tax one is liable to pay on the property owned, people get inclined towards finding ways to avoid the capital gains tax when it comes to the selling point of the property. Especially when a resident of the UK is interested in selling the main home. You will be liable to pay the capital gains tax if the house is your main home and it is the only residence you own. There are possibilities to avoid the capital gains tax if the following conditions are met:
- The house is the primary home of the resident and has been used as the main home for the entire time.
- The house was not let out in part in the past.
- In the case of a single lodge, the part of getting the portion of the house is not applicable.
- Any part of the residence has never been used for business purposes.
Avoiding Capital Gains Tax on Inherited Property
If the property is inherited by any individual the role of the capital gains tax comes into play. Most of the people who are inheriting property do not like to keep the burden of tax payments. If such an individual chooses to sell the property immediately after the ownership and the market value has not increased over the period of time, the good news is that there will not be any tax liability in such a scenario. You will not be in a position that is subject to the capital gains tax.
Avoiding Capital Gains Tax on Foreign Property
There are several cases that are inclined towards finding ways to avoid the CGT on the property that they own abroad. Especially when it comes to the season of paying the tax before the deadlines. In case the foreign property is declared the main residence of the individual the UK tax authority will not ask you to pay the capital gains tax on it. Once the tax authority is sure that the international house is the main residence of the person, there will not be any tax liabilities that you will have to go through.
The Bottom Line
Now that you have gathered a fair amount of information about how to avoid CGT on inherited property in the UK, we can bring the discussion towards wrapping up. Since there are several situations in the case of owning inherited property. This might become challenging to avoid capital gains tax in case the house is being used for business purposes or it has been given for let out in the past. However, there are still possible smart ways to go through in finding how to avoid being the matter subject to tax liabilities. We hope these few minutes of reading will help you to develop a better understanding of paying tax on inherited property and what are the smart ways to avoid it.
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Disclaimer: The information about the tax on how to reduce corporation tax in the UK provided in this blog includes text and graphics of general nature. It does not intend to disregard any of the professional advice.