Capital Gains Tax (CGT) is a tax on any profit (“gain”) made when you sell (or “dispose of”) capital assets in a tax year.
You may have to pay Capital Gains Tax if you make a profit when you sell property that’s not your home, for example:
- An inherited property
- Buy-to-let properties
- Business premises
If you inherit a house in the UK, Capital Gains Tax (CGT) will be payable if you decide to sell the inherited property and you make a profit from the sale. CGT is payable on any amount you make above the value of the property when you inherited it, minus any allowable deductions.
So how much is CGT on a property? And how do you calculate CGT? Read our guide below to find out the answers to these questions and more...
We can also help if you're feeling overwhelmed or unsure about the best way to sell your inherited home. We understand it can be difficult to navigate the sale of an inherited property. That’s why we designed our quiz. It helps you discover alternative ways to sell based on your priorities, property, and more. Click the button below to get started…
1. How much is CGT on a property?
Any profit made on the sale of a property that isn’t your home is taxable as an “upper rate gain”.
- Are you a higher rate Income Tax payer? If so, you’ll pay 28% on your gains from selling an inherited home.
- If you pay basic rate Income Tax, the rate you pay will depend on the size of your gain and your taxable income.
Please note that the tax bands are different in Scotland - please follow this link to find out more.
2. When will I have to pay CGT on an inherited home?
CGT is payable on any amount you make above the value of the property when you inherited it (minus any allowable deductions which we set out below). You will therefore only have to pay CGT if you decide to sell the inherited home and make a profit.
2.1 Do I have to pay CGT if I move into an inherited property ?
If you inherit a property and decide to live in that property as your main residence, you won’t need to pay CGT if and when you choose to sell that property as you will be entitled to “private residence relief”.
2.2 What is the CGT payment deadline?
If you make a taxable capital gain from selling your inherited home in the 2022-2023 tax year, you will have to pay the tax owed within 60 days of completing the sale. You can do this by submitting a “residential property return” and making a payment on account.
3. What can I deduct from my taxable gain?
If you sell an inherited property and make a profit, you can deduct the costs of selling or improving that property from your gain. We have set out some examples of allowable deductions below:
- Estate agents’, auctioneers’ and solicitors’ fees
- Surveyors’ or valuers’ fees
- Advertising fees to find a buyer
- Costs of improvements works, for example if you have added an extension or a garage to the inherited property (normal maintenance costs, such as decorating, cannot be deducted)
4. How much CGT will I have to pay?
We have broken down the steps to calculating CGT payable when you sell a property that isn’t your home - calculators at the ready!
Step 1: Work out your total gain
Let’s use Emma as an example.
- Emma sold a property she had inherited for £250,000.
- The value of the property at the time Emma inherited it was £150,000.
- Emma spent £1,000 on estate agents’ costs and £2,000 on solicitors’ costs.
- Emma also added a garage to the inherited property before selling it which cost her a total of £10,000.
So Emma’s total gain = £250,000 - £150,000 - £1,000 - £2,000 - £10,000 = £87,000
Step 2: Work out your capital gains allowances and deductions
There is a Capital Gains Tax allowance every year, which for 2022/23 is £12,300. This is the amount of profit you can make from an asset in a tax year before any CGT is payable. If you don’t make use of your CGT allowance in a given tax year, you can’t carry it forward to the next tax year - so use it or lose it!
In our example, Emma hasn’t yet used any of her CGT tax allowance for the tax year so her total deductions = £12,300.
Step 3: Work out your taxable gain
In our example, this would be £87,000 - £12,300 = £74,700
Step 4: Work out your tax rate and multiply by taxable gain
The tax rate will be based on your Income Tax bands. Remember there is a UK Personal Allowance, which is the amount of your income that you don’t pay tax on. In the 2022/2023 tax year, the standard Personal Allowance is £12,570.
In our example, Emma earns £30,000. Emma would need to deduct any income above £12,570 (your personal allowance for 2022/23) from £37,700 (the basic rate tax band) to see how much of the capital gains will be multiplied by the basic CGT rate of 18%. Any amount above £37,700 will be taxed at 28%.
So £30,000 (Emma’s income) minus £12,570 (Emma’s personal allowance) = £17,430.
Deducting this amount from £37,700 gives £20,270. This is the amount of Emma’s gains that will be multiplied by the basic CGT rate of 18%. The remaining amount is multiplied by the higher 28% tax rate, as follows:
- The first £20,270 of the taxable gain is multiplied by 18% tax rate = £3,648.60
- The remaining £54,430 taxable gain is multiplied by 28% tax rate = £15,240.40
- Tax to pay = £18,889
Capital Gains Tax as a higher rate tax payer
Anyone earning more than £37,701 plus your personal allowance (for most, a total income of over £50,270) for the 2022/23 tax year will pay CGT at an increased rate of 28% on their total taxable profit as they are a higher rate income tax payer and therefore do not qualify for the lower rate of 18%.
If your brain is feeling a little frazzled and maths isn’t your thing, HMRC have created a handy capital gains calculator that will do the hard work for you.
5. How can we help?
If you have inherited a house and want to sell it quickly to avoid CGT, or simply do not want the stress of selling an inherited property and the associated costs at an already difficult and emotional time, we can help.
Take our free quiz to explore alternative selling methods that are faster & more certain than an estate agent sale. You’ll get instant, tailored recommendations based on your priorities, property & timeframes.
Click the button below to get started:
Consider reading our "Ultimate Guide to Selling an Inherited Property" too.
By Matthew Cooper, Co-Founder of Home Selling Expert