If someone were to inherit a mortgage free house, would they pay inheritance tax when selling it?

[SendMyLoveToYourNewLUHuvahh]

Say the house was worth £400-£450k

Is it possible to have to pay £80-£100k inheritance tax?

I realise that inheritance tax exists of course. But this is what we were told and my mum said it doesn't sound right.

I'm wet behind the ears so thought I'd ask here.

TIA

[SendMyLoveToYourNewLUHuvahh]

Sorry. I mean to say would you have to pay all that tax if you chose to sell it?

[ImperialBlether]

How many people was it left to?

I thought you had to pay inheritance tax whether you sell the property or not.

[MrsHulk]

House can be left to a spouse with no inheritance tax (even when they sell it) but otherwise the value of the house counts as part of the taxable estate.

So if your mother left the house to you, you'd have to pay inheritance tax on its value at the point you inherit it, even if you are keeping it.

Have a look at the hmrc website, it's pretty helpful

[MrsHulk]

NB there are exceptions if she gives the house to you then survives for 7 years, may be worth considering if she is estate planning

[NameChange30]

The inheritance tax threshold is £325k. If you inherit more than that, you have to pay 40% tax on anything above the threshold. For example, if the house was worth £425k, you would pay £40k IHT. (£425k - £325k = £100k. 40% = £40k.) However, you would have to pay the IHT when you inherit the house, not when you sell it.

[garibaldi88]

I believe you'd pay the tax when you inherit it, not if you later sell it. The amount of tax would depend on what's in the rest of the estate, and how much its over the tax free amount allowed.

[ImperialBlether]

"Your estate will owe tax at 40% on anything above the £325,000 inheritance tax threshold when you die (or 36% if you leave at least 10% to a charity)."

This is according to Martin Lewis, MoneySavingExpert.

So if the house is worth £400,000, you'd have to pay inheritance tax of 40% on £75,000, that is £30,000.

[OutsSelf]

A quick google would suggest that you will have to pay £50k which is 40% of £450k - £325k. You will also have to pay 40% of the value of the rest of the estate. Also, you would be liable for it when you inherit, rather than when you sell.

If you lived in the property with your Mum for 7 years, you wouldn't have to pay.

Your Mum might be thinking about the transfer between spouses, who also don't have to pay.

[AppleAndBlackberry]

You have to pay it within 6 months of the death whether or not you sell it. Late payment of inheritance tax incurs a fine. If there isn't enough cash in the estate then you would be expected to take out a loan and repay it when the house has sold.

[EnquiringMingeWantsToKnow]

Married couples can double up on their tax free allowance as well. So if a married couple own a house worth 650K then the first to die will leave their half to their spouse tax free because they're married, then when the survivor dies they can leave the entire house to their child (or cat, or paramour) tax free because they can use both lots of 325,000 IHT allowance. And on top of that there's an extra "main residence allowance" which will be introduced next year and increase to 175,000 on top of the existing 325,000 allowance.

[IceMaiden73]

IHT may be payable on the estate, depending on the total value of assets left

If someone inherits a house and subsequently sells it then they may be subject to Capital Gains Tax on the profit between inheritance value and sales value

[SendMyLoveToYourNewLUHuvahh]

But this makes no sense.

We get given a house and we have to find 50k out of our own pockets?

We don't even have £50 let alone £50k for inhertiance tax?!

[NameChange30]

So you expect sympathy for inheriting a £425k house and having to pay £40k inheritance tax

It's pretty simple, you sell the house to pay the tax bill. If you don't want to do that, you get a mortgage or loan.

[Diddlydokey]

A lot would sell the house at that point to pay for the IHT bill and take the remainder. Some would establish a life insurance policy to cover the IHT liability on their death so that the kids can keep the house/inheritance

You also need to be aware of capital gains tax if the asset increases in value after the death.

[NameChange30]

Even allowing £5k for sale costs you'll still be £380k in profit FFS

[Diddlydokey]

www.moneyadviceservice.org.uk/en/articles/a-guide-to-inheritance-tax#when-is-the-tax-paid

[PestoSwimissimos]

No, you have to pay the inheritance tax from the Deceased's estate. If that means having to sell the Deceased's assets, that's what you have to do.

[sofato5miles]

Can you mortgage the IHT amount and rent it out to pay it off?

Or just sell it.

[SendMyLoveToYourNewLUHuvahh]

So you expect sympathy for inheriting a £425k house and having to pay £40k inheritance tax

How rude.

If we sell the house and pay the tax, that's fine. Sympathy, ffs.

What I was being said that was that on receipt of the house, once it was given to us, we have to find £40k for tax before its sold.
I don't have £40 in my bank account we are so broke. Let alone 40k!!!

[YorkieDorkie]

People do this all the time, no one is going to knock on your door demanding £40k the day someone dies. You just need to crack on with the sale and then settle with your solicitors.

[InTheDessert]

You have, I believe, up to 10 years to pay. But it attracts some interest (3%???) after 6 months.
So, yes. If your Grandother is separated from your Grandfather, and leaves you a house worth £425K (and has £0 in other assets), you need to find £40,000 at some point. If you sell the house 18 months after the death, you will need to find an extra 1200 interest or more if they do monthly or daily interest, I don't know

If your Grandmother was married to your Grandfathet, and he died some years ago, while they were still married, and you were left a house worth 425k, and nothing in the bank, no inheritance tax would be due. The spouses tax free limits are carried over if the spouse inherited the first time.

However if you never live in that house and sell it some years layer, capital gains tax is likely.


In short, inheritance tax is due when the inheritance happens, not when the asset is sold.

Sorry for your loss.

[NameChange30]

You can't have read many threads on MN if you think my comment was rude

"on receipt of the house, once it was given to us, we have to find £40k for tax before its sold."
No one has said that. Several PPs have said that you have several months to pay the tax. So if you manage to sell the house quickly you can sell it first and then pay. If you can't complete the sale before the deadline for paying IHT you will have to get a loan. There will be solutions, it happens to people all the time.

[SendMyLoveToYourNewLUHuvahh]

Ok thank you for helping me.

I was quite literally expecting the tax man to come thumping on our food demanding 50k.

I have absolutely no understanding of this kind of thing, having never been in this position.