Creating a financial legacy and laying the financial foundation for your future generations is a dream that lives in the hearts and minds of many. It is often a driving factor in the decisions people make throughout their lives. 

“What kind of career or business should I pursue? Where should I buy a home? What kind of investments should I make? How should I handle my finances and prepare for my children and my children’s children?” These are the types of questions that determine the course of the lives of many.


Do You Owe Tax if You Inherited a House or Inherited Property? 

For some, the only financial legacy that remains after a loved one is gone is their homes or the properties they own. For others, there are other assets as well. Unfortunately, after the passing of a loved one, the estate of the person who died has bills to pay. 

As unfair as it may seem, there is an inheritance tax bill due after the death of the person owning those assets. Almost immediately (within 6 months of the passing of the deceased person), the estate agents are expected to pay the tax due to HMRC. 

This fact has led to many people seeking out legal and ethical ways to avoid inheritance tax and lower their inheritance tax threshold so that they can keep more of what their loved ones worked so hard to obtain. Is this possible? If so, how can it be done? What is the best way to deal with inherited property and taxes?


What Tax Are You Liable to Pay If You Inherit Property or Assets?

It first helps to know what is expected of you if you have inherited any property or assets. You may ask yourself these questions.

  • Do I have to pay capital gains tax if I sell a house that I have inherited?

Yes. If you decide to sell the house or are selling the property you have inherited and it has increased in value since you inherited it, you will owe capital gains tax on the profit of that sale. If you decide to move into it as your main residence and then eventually sell it, you will not be required to pay capital gains as you get full capital gains tax relief on the sale of your main residence.

  • Is there inheritance tax on a property if I don’t move into it?

Inheritance tax is calculated on the total assets of the entire estate. That includes the value of the homes, any investments and all other assets. If you wish to keep the home, the tax is still due and must be paid within 6 months of the death of the deceased person.

  • Will there be taxes due if assets are left to the children or grandchildren?

There are certain ways around paying inheritance tax on assets if they are left to children or grandchildren, such as having them left in a trust. 

Don’t forget, the tax-free threshold for inheritance tax is £325,000 and inheritance tax (which is set at a standard 40%) is only applied to the value of the estate that is above that amount.


What Are You Going to Do with Your Inherited Property?

The next step is to decide what you are going to do with your inherited property. Bear in mind that if, after the probate process is complete, it is your property and can do with it what you will. What are your options?

  • Move In

If you do not have a main residence (or wish to sell your current residence) and wish to move into your newly inherited property, it is a great way to get a new start, or a head start in life. Most people’s largest lifetime purchase will be their home and if you do not need to buy one, you can save or use that money for other priorities.

  • Sell

If you do not have a desire to keep the inherited property, you can always sell it. You will be responsible to pay any applicable capital gains and other related taxes on the sale of a home. 

  • Let

If you do not wish to sell the property but have no desire to move in, you can always choose to let the property. This can create a sizeable passive income which can be used for any number of family needs. This way, you still own the property and can choose to move in later or simply keep it in the family. Whether this is to be passed down to others in your family or sold later as a way to fund your retirement is up to you.


7 Ways to Avoid Paying Inheritance Tax

No matter what you choose to do, you will have to deal with the probate first, which is the process of dealing with the legalities of your deceased loved one’s estate. This involves the distribution of assets, the execution of the will and much more. This is also the process in which the family decides how to pay the inheritance tax due on the estate (if it is valued above £325,000).

Ideally, before this process, while your loved ones were still alive, they took some steps to help avoid inheritance tax. Here are a few tips to help you and your family avoid inheritance tax in the future.

1. Give Gifts

HMRC regulations allow you to give away your assets as gifts and as long as you survive 7 years after the gifts are given, they will not be subject to IHT (Inheritance Tax). This includes gifts of cash for weddings and up to £3,000 a year, completely IHT-free.

2. Set Up a Trust

The rules around trusts can be complex but if you have assets in a trust for a child or grandchild, they do not count toward the value of your estate and are not subject to IHT. This can keep more money in their bank accounts for when they are ready to take control of those assets.

3. Give to Charity

Giving to a great cause is beneficial in many ways. If you give 10% or more of your estate to a charity, the rest of your estate will be taxed at 36% instead of 40%.

4. Keep Your Estate Below the IHT Threshold

Doing this may take the help of a professional. By taking advantage of and maximizing all allowable credits for your estate, between you and your spouse or civil partner, could potentially pass up to a £1,000,000 estate, IHT free. 

5. Have Life Insurance

With some planning, life insurance can be used as a hedge against the brunt of the inheritance tax due at the passing of a loved one. 

6. Enjoy It

Who wants to pay the government 40% more taxes after they have died? No one! That is why it makes sense to enjoy some of the spoils of your efforts and use some of your assets to live life to its fullest while you can. 

7. Have a Solid Will

Finally, a will is your best defence against unnecessary IHT taxes. Without a clear and properly stated will, the division of assets is left up to “intestacy laws” and can leave your estate exposed to excess inheritance tax. Take the time to draft a professional will that protects your assets and your family. 


Inherited Property and Taxes Can Be Overwhelming

Many factors come into play when there is an estate to settle after the passing of a loved one. Get professional help if you feel the need to ask questions. Make sure to choose the options that suit your family and your goals for the future. Also, plan effectively so that when your children and grandchildren are settling your estate, they are well taken care of.


Get in touch today to see how we can help you!