What is my Tax situation on Inherited property?

hearts

Hi I am going to Inherit a property from a non relative. I am wondering where I will stand re tax implications.

Will I be liable to tax on the price of the property when I inherit?
If so can I hold on to the property and not pay tax till I sell it?
Can I pass the property on to my child?
Thanks

Should have mentioned the total estate will be less than 150k.

CLAPTON

the decease's estate pays all debts and inheritance tax (if applicable)
the beneficiaries (you) have no tax to pay on the inheritance

if later you sell it for a higher price than the price at inheritance then capital gains tax may be applicable (assuming you werre not living there as your principal residence)
if you rent it out then tax will be payable as for any rental property

you can leave it to anyone you want subject to the normal inheritance tax rules

yelf

hearts wrote: »

Should have mentioned the total estate will be less than 150k.

then there is no tax payable

John_Pierpoint

hearts wrote: »

Can I pass the property on to my child?

If you are still within 2 years of the death, you (and the executor for reasons of politeness) could organise an "Instrument of Variation" - sometimes called a deed of "family arrangement". This document would be a legal fiction that re-writes the will and back dates the inheritance of the capital to the date of death. This IoV could make the will give the property directly to your child. [Provided there are no iff's and but's about your sole & absolute entitlement to the property over any other beneficiaries of the will]

[How old is the child?]

The child inheriting directly would avoid the IHT, CGT and "deprivation of assets" rules that could come into play if the property passes to you and you then give it to the "child/young person".

There can be disadvantages in a child coming into its inheritance at the young and inexperienced age of 18 - it rather depends on the nature of the child. (Some 10 year old's are more "savvy" than some 18 year old's.)

If you need to involve a solicitor, probably a good idea as you only get one go at making an IoV and there could be Income Tax and Capital Gains Tax implications, expect to pay circa 750 GBP for the service.

For some initial information Google "Instrument of variation".

hearts

John_Pierpoint wrote: »

If you are still within 2 years of the death, you (and the executor for reasons of politeness) could organise an "Instrument of Variation" - sometimes called a deed of "family arrangement". This document would be a legal fiction that re-writes the will and back dates the inheritance of the capital to the date of death. This IoV could make the will give the property directly to your child. [Provided there are no iff's and but's about your sole & absolute entitlement to the property over any other beneficiaries of the will]

[How old is the child?]

The child inheriting directly would avoid the IHT, CGT and "deprivation of assets" rules that could come into play if the property passes to you and you then give it to the "child/young person".

There can be disadvantages in a child coming into its inheritance at the young and inexperienced age of 18 - it rather depends on the nature of the child. (Some 10 year old's are more "savvy" than some 18 year old's.)

If you need to involve a solicitor, probably a good idea as you only get one go at making an IoV and there could be Income Tax and Capital Gains Tax implications, expect to pay circa 750 GBP for the service.

For some initial information Google "Instrument of variation".

How secure would this be with regard to my future financial position?
Say for instance I faced bankrupcy at some future date. ( not expecting it but you never know) or if I died with in a couple of years of doing this. ( Hope this doesn't happen either ;-) )
The Child is 20.

John_Pierpoint

A trust has a life of its own - depending on what you want to do with the real estate it could have an income of its own.

There are down sides in that a "discretionary" trust is regularly taxed to InHeritance Tax (IHT) if it is larger than the nil rate band (325K), its standard rate of tax has been put up to 50% and it only has a CGT nil rate band half that of a person - in other words it is assumed to be a moneybox of an already "wealthy" family.

Until GB messed about with the rules in 2006 there used to be the concept of an accumulation & maintenance trust that was treated much like an individual. It allowed wealth to be held on behalf of a child up to the age of 25 (when hopefully the child might have regained the common sense of an intelligent 10 year old). GB cut the date to age 18, after that the higher rates of taxation cut in.

On the income front the beneficiary should be able to reclaim the excess tax paid, if the trust pays out rather than accumulates, but with inflation running at 4% plus it will be losing value even before it pays 50% tax.

http://www.hmrc.gov.uk/cto/glossary.htm

If I died with in a couple of years of doing this?
It is nothing to do with you as an individual, the legal fiction is that the will is changed as though the deceased arrived at the pearly gates and changed their mind. Though you could be a trustee of the trust.

Though this fiction does not apply to the Income generated while you were the beneficiary and need not apply to the capital gain you may have made, while you were the beneficiary (case law) hence the probability of needing legal advice.
The average solicitor/accountant tends to complain that the 325K size limit on a "nil rate band trust" makes it very marginal for them to act as trustee - that said I ran an "Interest in Possession Trust" consisting of about 20K of investments and a house, for a dozen years; simply because getting the professionals to do the job would have more than mopped up the income from the investments. Real estate does tend to generate a need for a hands on trustee. (Burst pipe anyone?)
[HMRC was run by staff who knew their business in those days, and were available on the telephone - so doing the administration, accounts and the tax return, added up to only the equivalent of a weekend a year.]