In her Autumn Budget 2024, the new Labour Chancellor, Rachael Reeves, made changes to the inheritance tax thresholds in the UK.
Table of Contents
In this article, we’ll walk you through your potential inheritance tax liability if you are selling an inherited property, including:
- What is Inheritance Tax?
- What are the Inheritance Tax thresholds?
- Exemptions to paying Inheritance Tax
- Do I also need to pay capital gains tax when selling an inherited property?
- How to work out the value of an estate
- Who is responsible for paying Inheritance Tax?
- When is Inheritance Tax due?
- What happens if you pay Inheritance Tax late?
- Does selling an inherited property to a cash homebuyer affect Inheritance Tax?
For more details, you can visit the Inheritance Tax section of the HMRC website by clicking here.
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What is Inheritance Tax?
Inheritance Tax is a tax levied on the estate of a deceased person if it is worth more than a set limit. In the UK, inheritance tax is paid at 40%, the sixth highest rate of all the OECD countries. There are more than twenty countries that have no Inheritance Tax at all, including India, China, Australia and New Zealand.
According to the Institute for Fiscal Studies, Inheritance Tax raised £7billion in 2022/23, but this is estimated to grow to £15billion by 2032/33. Inheritance Tax Liabilities Statistics, issued in July 2024 showed that just 4.39% of UK deaths resulted in an Inheritance Tax liability, which is less than one in twenty, though the Office for Budget Responsibility estimates this will rise to 5.6% in 2024/25.
Research by Ansell (2023) found that Inheritance Tax was an unopular tax, with just 20% of people thinking it was a fair way of raising revenue.
What are the current Inheritance Tax thresholds?
- Inheritance Tax is due on the proportion of an estate over £325,000
- Inheritance Tax is due on the proportion of an estate over £500,000, if you leave your home to your children or grandchildren (and your total estate is worth less than £2million)
- Any unused Inheritance Tax threshold from one spouse or civil partner can transfer to the other, as long as they were married (or in a civil partnership) when the first person dies.
- This means that if someone dies after leaving everything to their partner, then that partner’s Inheritance Tax threshold rises to £650,000, or £1million if they leave property to their direct descendants.
- Inheritance Tax is paid at 40% of any amount over these thresholds.
Exemptions to paying Inheritance Tax
- No Inheritance Tax is due on estates worth under £325,000
- No Inheritance Tax is due on estates worth under £500,000, if you leave your home to your children or grandchildren (and your total estate is worth less than £2million)
- Inheritance Tax rates are cut to 36% if you leave 10% or more of your estate to charity
- Inheritance Tax works differently for commercial premises, farms and agricultural estates
- No Inheritance Tax is due on anything you leave to your spouse or civil partner
- No Inheritance Tax is due on anything you leave to a charity or community amateur sports club
Do I also need to pay capital gains tax when selling an inherited property?
Capital Gains Tax is only due when it comes to selling an inherited property. For example, if the property has increased in value between the death of the owner and its sale by the executor(s) or administrator(s), or if you keep an inherited property, and it increases in value before you sell it in the future.
Your Capital Gains Tax can be reduced by your annual exemption (currently £6,000) and other exemptions and reductions can apply. It is best to seek expert advice from a qualified tax accountant if you think you are liable for Capital Gains Tax.
How to work out the value of an estate
You will need an approximate value of an estate in order to apply for probate. You can find out how to estimate the value of an estate by clicking here.
In order to calculate whether there is an Inheritance Tax liability, you will need to calculate the exact value of an estate. You can get local estate agents to help you with this. If Inheritance Tax is due, then you need to let HMRC know, as you need a code from them to apply for probate.
Who is responsible for paying Inheritance Tax?
Inheritance tax is paid from the estate of the deceased, not by those who actually inherit. Your inheritance will be paid net of tax and will not come with any liability.
In practice, paying Inheritance Tax is the responsibility of the executors(s) or administrator(s) of the will. It is either paid directly from the estate or paid by them and reimbursed later.
When is Inheritance Tax due?
The executor(s) or administrator(s) of an estate are obliged to start paying Inheritance tax six months after the death, even if property and other assets remain unsold.
This is why selling inherited property fast is important. An open market sale could take longer than six months, especially when you consider that it will take several weeks to even get to the start of this process after someone dies.
What happens if you pay Inheritance Tax late?
If you are struggling to sell a property, you may end up in a position where you do not have the funds available to start paying Inheritance Tax when it falls due after six months.
If you are late paying Inheritance Tax, you could be fined, and interest may be charged on the outstanding balance. You can apply for a grant of credit from HMRC, but this is not automatically given.
Selling inherited property fast, to a cash buyer, avoids the risk of Inheritance Tax falling due before you have the means to pay.
To find out how much you could get selling an inherited property fast to a cash buyer, click the button below for a free, no-obligation cash offer estimate.
Does selling an inherited property fast to a cash homebuyer affect Inheritance Tax?
This is a question that we are often asked. If you accept a lower price when selling an inherited property fast, does this decrease the value of the estate for Inheritance Tax purposes (and maybe help you avoid the tax altogether)?
Unfortunately, the answer is no. The value of the estate is based on the value of the property on the open market, not on the price you actually get for it when you sell. Selling an inherited property fast to a cash buyer will usually get you around 80% of the market value, but the total value of the estate is unaffected.
You will, however, sell faster, at a fair and guaranteed price. You’ll also be in a position to pay any Inheritance Tax bills that fall due, without paying out of your own pocket while you wait for the property to sell on the open market.
To see what you could get by selling an inherited property fast for cash, click below for your free estimate. If you think you can work with this figure, we can connect you to the fully vetted, recommended cash buyer that we think is best for you.