Capital Gains Tax On Inherited Money
Capital Gains Tax on Inherited Money
What Is Capital Gains Tax?
Capital Gains Tax (CGT) is a tax that is paid on any profit made from the sale of an asset. This includes gains from inherited money or assets. CGT is payable on the total amount of profit made from the sale of an asset and not just the amount received from the inheritance. It is important to note that CGT is not the same as income tax and is calculated differently.
Inheritance Rules and CGT
When it comes to inheritance, there are certain rules that must be followed when it comes to CGT. In most cases, if the asset has been inherited, then the person inheriting the asset is not liable for CGT. However, if the asset is then sold, the person who sold it may be liable for CGT. CGT is calculated on the amount that is received from the sale of the asset, minus any costs associated with the sale.
When Is CGT Payable?
In most cases, CGT is only payable when the asset is sold. This means that if you inherit an asset and do not sell it, you are not liable for CGT. However, if you do sell the asset and make a profit, then you must pay CGT on the amount that you received from the sale. It is important to note that CGT is payable on the entire amount of the profit and not just the amount that was received from the sale of the asset. This means that if you make a profit of £100,000 from the sale of an asset, then you will be liable for CGT on the entire amount.
How Is CGT Calculated?
CGT is calculated using a simple formula. This formula takes into account the amount of profit made from the sale of the asset and then subtracts any costs associated with the sale. To calculate the amount of CGT payable, you will need to know the amount of profit made from the sale and any costs associated with the sale. Once you have these figures, you can then use the formula to calculate the amount of CGT payable.
Reducing CGT Payable
There are a few ways in which you can reduce the amount of CGT payable on an asset that you have inherited. One of the best ways to do this is to invest the money that you have inherited in assets such as stocks and shares. This will allow you to make a profit from the sale of the asset, which can then be offset against the amount of CGT payable. Another way to reduce the amount of CGT payable is to make sure that you are not taking too much risk when investing the money. For example, if you are investing in stocks and shares, you should make sure that you are only investing in low-risk stocks.
Conclusion
Inheriting money or assets can be a great way to increase your wealth. However, it is important to remember that any profits made from the sale of an asset are liable for CGT. To reduce the amount of CGT payable, it is important to make sure that you are not taking too much risk when investing the money and to also invest in assets such as stocks and shares. By following these tips, you can reduce the amount of CGT payable and increase your wealth.
