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Where Taxpayers and Advisers Meet

IHT and CGT on sale an inherited property

Ifeanyi
Posts:10
Joined:Wed Aug 06, 2008 3:54 pm
IHT and CGT on sale an inherited property

Postby Ifeanyi » Mon Mar 15, 2021 10:04 am

Hello,
I am trying work through my options for an inheritance property that I propose renovate, then rent out, and at a later point, sell.

I am trying to ensure that I have understood potential IHT + CGT consequences.

If I inherit the residential property worth say (for simplicity) £525k.

I agree to pay HMRC IHT on the estate by instalments, thereby allowing me time to renovate the property (instead of selling it straightaway) at say c. £100k, and thereafter renting it out over 5 years, before selling it (for simplicity) at £825k, are the below IHT and CGT analysis correct:

Inheritance
£000
525 Value on inheritance:
(325) IHT exemption
200 Value of estate for IHT
(80) IHT liability (payable in 10 instalments of£8K+HMCR interest)

£000 following sale
825 Value at sale
300 Gain following Inheritance
(135) CGT liability on sale (assuming I'm 40% income tax payer)
(40) Remaining IHT (assuming holding and renting the property for 5 years + paying annual IHT instalments of £8K per year)

Another question, would it be possible to raise a mortgage on an inherited property as described above to pay for the IHT instalments and renovation costs, assuming its intended to be a rental property? Would the mortgage on the property at the point of sale be deductible from the capital gain chargeable to CGT?

Thanks

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: IHT and CGT on sale an inherited property

Postby AGoodman » Tue Mar 16, 2021 5:38 pm

You analysis of the IHT may or may not be right but you haven't mentioned the transferable nil rate band or the residential nil rate band (or even transferable residential nil rate band). If the deceased is an ancestor of yours and they lived in the property (at some point) then the residential nil rate band may be available. If they were a widow or widower then the transferable nil rate band and transferable residential nil rate band may be available.

You could get a mortgage just as any other although you will need to distribute the property to yourself. You haven't said who the executor(s) is/are. However, you don't deduct a mortgage debt from a CGT gain - it makes no difference.


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