How Can we Reduce the Capital Gains Tax on an Inherited House?

The process of working through a will and navigating an inheritance, particularly if there is a property involved, can be challenging. Loved ones are missed and often the legal procedures need to be addressed as soon as possible, not leaving much room for grieving.

While this may be the case, the legal details must still be taken care of and if you are the one who has inherited a house, you will want to know what you are responsible for and what you can expect if you are planning on selling the house. If you have recently inherited a house, what can you do to reduce the capital gains tax that will be owed on an inherited house?

Do I Owe Capital Gains Tax on an Inherited Home?

Amal from capital gains tax accountancy Accountingpreneur said “No. If you have simply inherited a home, you owe no capital gains tax on it.\” You may be responsible to pay an inheritance tax but capital gains taxes are not accrued unless you decided to sell the home. 

How Can I Reduce the Capital Gains Tax?

There are a handful of strategiesthat you can deploy that will help you reduce the amount of capital gains tax that you will owe when you sell an inherited home.

Sell Immediately

Capital gains are determined by the amount of profit you make from the sale of a home. When you inherit a home, the home is reassessed and provided a market value at the time of the death of the previous owner. If you choose to sell the property right away, it will be sold at the same value at which you became the owner, meaning you will owe no capital gains tax. (You will still be responsible for the income tax due from the sale of the property.)

Make it your Main Residence

Another way of reducing the capital gains tax you may owe on an inherited home is to make that home your main residence. The law states that you are not liable to pay CGT (capital gains tax) on your main residence if you have lived in that home the entire time you have owned it. 

Deduct All Associated Costs

After selling the home, be sure to deduct all applicable costs associated with the home. Any selling and closing costs, the cost of any improvements made to the home as well as any of the costs incurred in the inheritance process (for the home) can be deducted against any realized capital gains.

Use All Personal Exemptions and Allowances

All UK residents have personal capital gains tax allowances that they can use to reduce the amount of capital gains tax they owe. Be sure to use all allowances and exemptions available to you to decrease your capital gains tax liability.

Don’t Sell at All

If you are looking to pay no capital gains tax at all on an inherited property, don’t sell it. If you keep it in the family and pass it on to your children with their inheritance, you will never owe any capital gains tax. You can only be taxed for realized capital gains and if the home stays in your possession, all capital gains remain unrealized.