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From Inheritance Tax to Capital Gains Tax, inheriting a property means that a variety of payments have to be made. However, Income Tax is usually ignored, despite it having some relevance to the situation.
Typically, Income Tax is only paid based on your income, any money you make through employment or self-employment. Therefore, when it comes to inherited property, this tax isn’t typically applied.
However, once you have inherited a property you can choose whether you want to live in it, sell it or even rent it to somebody else. It is well within your rights to rent out an inherited property to create an extra revenue stream, but if you do, Income Tax will have to be paid on any profit above £11,500.
How much Income Tax would I have to pay?
Figuring out just how much Income Tax you’ll have to pay on any profits you make through rent can be a bit more complicated than Inheritance Tax or Capital Gains Tax.
The first step is to calculate the total profit made from any tenants living in the property. This is done by calculating and deducting any of the allowable expenses such as maintenance and repairs. For example, if your rental income is £15,000 and the allowable rental expenses were £1,500 then the overall rental profit would be £13,500.
Next, you deduct your personal allowance, which is the amount you can earn annually before tax is deducted. For the 2017/18 tax year, the amount was £11,500, making the taxable amount £2,000.
The first £33,500 of taxable income is charged at a 20% rate, meaning that the amount of Income Tax paid is £400.
The personal allowance covers your entire income, so if you have another job alongside the income that is brought in via the property, you will have to take this into account when calculating how much Income Tax you are set to pay.
While renting out an inherited property is certainly an option, it’s important to be aware of all the taxes you’ll be likely to pay throughout every stage of ownership. While Income Tax is not paid on inheritance directly, it’s what you do with the property in the future that will dictate whether you will pay the tax.
This is just a basic overview of how when Income Tax is paid on an inherited property. There are a variety of different conditions such as your own personal income that can affect the amount you have to pay. Further information can be found on the government website.
If you've inherited a property and are looking to sell the house rather than rent it out or live in it yourself, contact us at We Buy Any House for your free offer today.