Inheritance Tax

[Suetheramble]

If a property is inherited is there a time limited that the property has to be sold to keep the inheritance tax relief?

[fiction-factory]

I would have thought the inheritance tax doesn't have to be paid until after it's sold. I can't see how HMRC would expect IHT to be paid before a sale has been completed. Tax rules are not always as straightforward as they might be so hopefulyy a tax expert will see this

[fiction-factory]

Ah you wondering whether a relative could get away with living in the house without selling it and without the estate paying IHT?

[fiction-factory]

"Are" not "ah!". This voice recognition is rubbish

[Hymie]

Once the property is inherited (with no inheritance tax to pay), that is it – there is no inheritance tax to pay.

However if the property is not your main residence when you come to sell the property, there may be capital gains tax to pay on the difference between the inherited value and the and the sale price (at 40% tax).

There is an annual CGT allowance of around £11k, and I believe you can deduct any selling costs from the capital gain amount.

[Hymie]

As an example, say 10 years ago you inherited a property valued at £200k and you now sell the property for £300k (costing £5k in total to sell).

Your CGT liability will be (£300k – £200k - £5k -£11k) x 0.4 = £33.6k

Note that you only get the annual tax relief once, for the current year.

Imagine that you rent out the property for 20 years plus – when it comes time to sell, you could face a significant CGT demand due to the increase in property value.

[Suetheramble]

The situation has not yet risen but purely a matter of interest. My brother lives in house with our mother but I have told him he can stay there for as long as he wants when the time comes to be by himself;however it is a big house and if he decides to move in 10 years time do I lose inheritance tax benefits whereas if we sold within a year I would not pay tax but as it is my brothers only home but I live elsewhere.

[bednobs]

i am really confused about your question. IHT is paid by the estate so anything you inherit will have already been taxed for inheritance tax, you don't have to pay anything.

[ubasses]

When someone dies the Estate is valued for probate and if there is any IHT to pay it should be paid by the 6th month after death. It is the Estate that owes the Tax. You can apply to pay it over a period of up to 10 years if it involves selling assets, but you will pay interest.
Once Probate has been completed I assume you and your brother will own 50% each. If he remains in the property and it is sold at a later date you will be liable for CGT at either 18% or 28% dependant on your income tax bracket, although you will have an allowance to offset off the gain (currently £11,000) I would think that as he will have always lived there he will not have any CGT liability as it is his primary residence. When the house is sold any outstanding IHT must be paid.

[Suetheramble]

Thanks ubasses. This is interesting it was just mentioned over a meal with friends and I was curious.