After someone dies, their estate is taxed. This inheritance tax can end up costing your family members huge amounts of money. There are ways to reduce this amount, and even to ensure that you pay nothing at all. However, inheritance tax rules are complex and nuanced, and people commonly misunderstand them at first.
In this article, we'll aim to simplify the whole process of paying inheritance tax by exploring the factors that influence whether you have to pay such tax on your inherited properties. We'll start by looking at how inheritance tax works, then consider the tax rate, ask whether you can sell your house for any price you like and whether it's possible to give your property away tax-free. Finally, where inheritance tax is relevant, we'll consider how quickly it needs to be paid, and what options are available if you urgently need to consider selling an inherited property in order to ensure you can afford the tax.
Inheritance tax is tax paid on a property when the owner of that property dies. Where an estate qualifies as one for which inheritance tax must be paid, the money to pay that tax comes from within the deceased person's estate. This will be planned and administered to the people named as executors of the will. When we talk about the person's estate, we mean their property itself, and also any investments and savings they have left.
Any debts (for example, remaining mortgage payments and loan repayments) are subtracted from the value of the deceased person's assets to work out the value of the estate - and this, in turn, determines how much tax needs to be paid.
The inheritance tax rate for properties valued at £325,000 and above is currently 40% in standard cases. However, if the deceased person leaves more than 10% of the estate to charity, the inheritance tax rate can be dropped to 36%. Meanwhile, there are two sorts of contexts in which there may be no inheritance tax to pay. The first is if the estate is valued at less than £325,000. The second is the whole of the estate is left to any of the following: a charity, a civil partner, a spouse, or an amateur sports club in your local area.
The Nil-Rate Band was established by the government in 2017, and it tells us that part of the value of someone's main property can be taken out of the relevant state's overall value. In such cases, there is nothing you need to pay - or you may only pay very little. This band currently sits at £175,000, which means that any estate essentially has a threshold of £500,000 before those responsible for that estate have to pay anything.
If you're the executor of an estate that falls into a category where inheritance tax is due, there is a deadline for its payment. Specifically, you need to pay the tax you owed within the first 6 months after the property owner passes away. This period allows sufficient time for all assets - including the property itself - to be professionally valued.
The short answer is yes - you can sell a property for any price you like. If a willing seller meets a willing buyer, then all is well. However, factors beyond your control play a role in what makes sense. For example, the property market itself sets the top feasible price. If you attempt to sell the property for much more than it is worth, you'll likely struggle to shift off the market.
And if you're going to sell the property for much less than its established market value, you need to be careful and measured about this decision. More importantly, you need to check that you'll still have the right amount of money to pay off any remaining mortgage payments.
If you give your property away and yet opt to stay in it for the rest of your life, you will be classed as the beneficial owner, which means that the property will be taxed along with every other aspect of your estate after depth. The same goes for such a property when it is labeled as another type of asset. Any time you give a property away, it may incur inheritance tax if you pass away within the seven years following the gifting.
Where any relevant gifts fall below the £325,000 allowance, they are lumped in with your estate when the precise taxable estate is calculated. Meanwhile, gifts above £325,000 result in you being charged a percentage on the excess - the exact percentage depends on how many years you live after giving the gift. However, if you live at least seven years post-gifting, no tax is due and the gift doesn't impact your tax-free allowance.
As noted above, inheritance tax must be paid within the six months immediately following the death of the estate's owner. This is deemed an appropriate amount of time for you to get everything valued and to play your payment. And if you're not able to pay the inheritance tax on time, you're subject to both penalties and additional interest. So, you'll ultimately end up paying more inheritance tax if you can't take care of it within the first six months of the inheritance.
To speed up the process and stay organised, you should do the following:
If you've inherited a property and you're worried that you won't be able to pay inheritance tax, one of the best services we offer is a quick sale for cash.
At Property Buyer, we can make you an offer within just a couple of days of first hearing from you, and we'll ensure the offer reflects the value of similar properties in the area.
If you're happy with the offer, we'll arrange an in-person valuation in case the offered price needs to be adjusted in either direction. And if you have questions or worries at any point, our team will be on hand to assist. Once agreed, we will instruct and pay all of the solicitor fees.
This approach is quick, effective and stress-free - we buy properties of all kinds, and in all conditions. No matter why and when you're selling inherited property, we have the experience and expertise to make it happen. We're used to arranging sales under deadlines, so simply tell us your timeline and we'll arrange everything in accordance with that timeline.