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Inheriting Property

Inheriting property is often the joke that people tell when they need a bit of a boost financially. “Well perhaps an old relative I’ve never heard of will die and leave me their mansion in their will,” or something similar, is a phrase that is laughed over across the nation.

But what if it happened? It doesn’t even need to be someone you’re not aware of who leaves you their property – it could be anyone, including the closest of family members. What do you need to do once you are declared the beneficiary of the deceased’s estate? There are laws and legislation that govern this eventuality, and this article will discuss them.

You really have two main options with regards to the property itself. You can either keep it, or sell it. Both are perfectly possible, and both have their own set of rules.

If you choose to sell the property, there may be Capital Gains Tax to pay. Capital Gains Tax is a tax on the profit made by selling something (such as property, a lease, or a business) that has increased in value. In the case of an inherited property, if the value has gone up since the date of death, then you will be required to pay Capital Gains Tax on the difference between that price and the final sales price.

If you choose to keep the property, then you need to decide what you will do with it. If you want to rent it out, then you will need to pay Income Tax on any earnings you make from doing so. If the property is already rented, and was the deceased’s second property, then their will may state that you will need to take over the landlord’s responsibilities.

If rather than renting or selling, you choose to live in the property yourself, and you already own a property (and choose to keep it after you inherit an additional one), then you will need to contact your Tax Office to let them know which property is your ‘primary principal residence’ within two years of owning both. The best way to do this is to nominate the property you will sell first, and it doesn’t necessarily have to be to the one you are living in most – or all – of the time. This is a perfectly legal way or avoiding having to pay Capital Gains Tax on the sale, since the property will be exempt under the private residence relief scheme.

Something else to bear in mind is Inheritance Tax, which becomes payable on estates worth over £325,000. There will be another article on that subject soon.

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