• Jason Short

Inheritance Tax and Capital Gains

Updated: Feb 19

Recently we have been asked about Inheritance Tax and the possible Capital Gains Tax on that inheritance.


There are a few items to note here, so I will try to make this concise as possible.


The first point to note is the Inheritance Tax threshold is currently £325,000 for one unmarried person or £650,000 for a person who was married when their partner died and has since died themselves. It is a common misconception that this is per recipient or per child, but it is actually based on the person who has died and their marital status.


The £325k per person inheritance tax threshold can be raised to £500k per person providing these two criteria's are met...

  1. The recipients of the estate are children of the deceased, this includes adopted, foster and stepchildren.

  2. The total estate of the deceased is worth less than £2,000,000.

Children's Inheritance
Children and Inheritance

This means the maximum that can be passed on tax-free is currently £1,000,000. The inheritance tax rate is 40% for everything over the allocated threshold amount.


Once the recipient has inherited the estate it will be liable for Capital Gains Tax should it be sold on. There is a small annual exemption allowance for CGT of £12,300 for each person and the residual is then taxed at either 18% or 28% depending on whether it falls in the lower or higher rate tax band.


Capital Gains on Inherited Property

For capital gains purposes the estate is valued at the value it was inherited. So if you Inherit a house worth £300k and 2 years later you sell it for £325k, it is only the £25k that is liable for capital gains, less the normal allowances, and incidental costs of sale.


Wills

There is one final point to outline that may be relevant to you if you wish to leave your estate to someone else. If you do not leave a will, your estate will be distributed under the rules of intestacy. This means that if you have an estate of less than £270,000 all of your estate will go to your spouse, however, if you have an estate of over £270,000, £270,000 will go to your spouse, and the rest could be divided up between children and grandchildren should they wish to make a claim. So if you haven't made a will already, and you wish to assure your estate goes to someone specific, get a will completed soon.


Links relevant articles and resources:

GOV.UK - https://bit.ly/3lN8uJm

CO-Op Legal Services - https://bit.ly/3lO6Zel


If you would like us to post up answers to any questions, you might have, please email us at - sales@shortandsons.co.uk and we may put it in our next blog post!


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Information is correct as of Feb 2021.

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