Probate property and tax: a guide for executors
When an estate includes property, tax is rarely far behind. Inheritance tax (IHT), capital gains tax (CGT) and income tax can all apply, depending on the circumstances. This guide explains each one clearly, so that executors and administrators understand their obligations before they begin.
Valuing the estate for tax purposes
The first task in any probate is to value the estate. That means establishing the open market value of everything the deceased owned at the date of death: property, investments, cash, and any other assets.
Accuracy matters here. The valuation forms the basis for calculating IHT and sets the starting point for any CGT calculation if assets are later sold. An incorrect figure can lead to wrong tax filings and, potentially, penalties from HMRC.
Inheritance tax: thresholds and how the tax is calculated
Inheritance tax (IHT) is a tax on the estate of a person who has died. The nil-rate band (NRB) is £325,000 for 2026/27, and the part of the estate above the available thresholds is normally charged at 40%, after any exemptions and reliefs.
An additional residence nil-rate band (RNRB) of up to £175,000 can apply if the deceased left their main home to children or grandchildren, potentially giving a total threshold of £500,000. The RNRB may be available when a residential property is left to direct descendants, including children, stepchildren, adopted children, grandchildren and their spouses.
To calculate the tax, subtract the available nil-rate bands from the total estate value. The remainder is taxed at 40%. For example, assuming the full RNRB is available, if an estate is worth £600,000 and the home passes to a child, the first £500,000 is tax-free and the remaining £100,000 is taxed at 40%, giving an IHT bill of £40,000.
Married couples and civil partners can transfer unused allowances between them, giving a combined threshold of up to £650,000, or £1 million when the residence nil-rate band also applies. The transfer must be claimed by the executor on the second death, and the two allowances use different forms. The ordinary nil-rate band is claimed on form IHT402. The residence nil-rate band is claimed on form IHT436, alongside form IHT435. Neither is automatic. If no claim is made, the second estate benefits only from the survivor’s own allowances.
There is a deadline as well. The claim must reach HMRC within 24 months of the end of the month in which the second death occurred. That is why the paperwork from a first death matters years later. Keep the marriage certificate, the death certificate, the will and the grant somewhere safe.
The nil-rate band is frozen at its current level until April 2031, while the residence nil-rate band is also frozen at its current level until April 2031, so more estates may be drawn into IHT as house prices rise.
You may also want to read:
- How to calculate inheritance tax
- Probate and inheritance tax: an overview
- Probate loans: the inheritance tax loan
Exemptions and reliefs that can reduce the IHT bill
Several exemptions and reliefs can lower the amount of IHT payable. Gifts to spouses or civil partners are normally fully exempt, as are gifts to registered charities. There is also a £3,000 annual gift exemption, allowing a person to give away that amount each tax year without it forming part of their estate.
In addition, specific reliefs apply to certain asset types. Business relief can reduce the value of a qualifying business or its assets for IHT purposes. Similarly, agricultural relief can reduce the taxable value of a farm or agricultural property.
You may also want to read: Inheritance tax exemptions and reliefs
Paying inheritance tax: deadlines and interest
IHT must be paid within six months of the end of the month of death, and HMRC charges interest from that date on any unpaid amount. The current HMRC interest rate on late IHT is 7.75% per annum.
Payment also gates the probate application itself. Where a full account on form IHT400 is needed, HMRC will not release what you need to apply until at least some of the tax has been paid. This creates a practical problem: most estate assets cannot be accessed without a grant of probate, yet IHT must be paid before that grant is issued.
The mechanics of this changed in January 2024, and older guidance is still circulating. In England and Wales you no longer complete form IHT421, the probate summary. Instead HMRC processes your IHT400 and sends you a unique code together with the gross and net estate values. You enter that code on the probate application. Without it the application cannot proceed.
Allow at least 20 working days after sending the IHT400 before you apply. Applying sooner is one of the most common reasons an application gets stopped, and a stopped application takes far longer to put right than the wait would have cost.
Executors can use the Direct Payment Scheme to release funds from the deceased’s bank accounts directly to HMRC before probate, or pay in ten annual instalments for qualifying assets such as property and businesses. Interest normally runs on the outstanding balance. For agricultural and business property, though, those instalments are usually interest-free, which can make them very hard to beat. Where the estate still lacks sufficient liquid assets, a probate loan is another option worth considering.
Executors can be personally liable for unpaid IHT and for losses caused by their errors. If there is any uncertainty, seek professional advice promptly.
Capital gains tax and probate property
Capital gains tax (CGT) is a tax on the profit made when an asset that has increased in value is sold. In probate, CGT can arise when the executor sells property or other estate assets. There is no CGT on death itself: assets pass to the estate at their market value at the date of death, known as the probate value.
The executor is responsible for calculating any gains or losses, reporting them to HMRC, and paying any tax due.
Where property is worth less than the probate value, there is often a better option than a capital loss. If the estate sells land or property within four years of the death for less than the probate figure, the executors can ask HMRC to substitute the sale price for inheritance tax purposes. That produces an inheritance tax refund, which is usually worth more than a capital loss the estate may never use. For quoted shares the same idea applies, but the window is only twelve months.
You may also want to read: Capital gains tax on inherited property
Selling probate property and CGT implications
When a probate property is sold, the gain is calculated by subtracting the probate value from the sale price. Allowable deductions include estate agents’ fees, legal costs, and the costs of any capital improvements. Routine maintenance and repair costs are not deductible.
One relief is easy to overlook. If, immediately before and after the death, the property was the only or main home of one or more individuals who together are entitled to at least 75% of the net sale proceeds, the estate may be able to claim private residence relief on the sale. A surviving spouse still living in the family home is the usual example, and the relief can remove the tax bill altogether.
Personal representatives selling property during estate administration pay CGT at a flat rate of 24% on residential property gains. The cost of obtaining the probate valuation may itself be deductible as an incidental cost of acquisition.
Personal representatives receive the full £3,000 annual exempt amount for the tax year of death and the following two tax years. This annual exempt amount, formally known as the Annual Exempt Amount (AEA), is the amount of gain that can be made before CGT becomes payable. Where the total taxable gain falls within this allowance, no CGT is due.
After those three years the estate has no allowance at all, so a long administration loses it entirely. There is also a way to get more than one allowance, and many executors miss it.
Before selling, you can formally hand the property to the beneficiaries. This is called appropriation and is usually done by a short deed. You can still handle the sale afterwards. The effect is that the beneficiaries become liable for the tax instead of the estate. Each of them uses their own £3,000 allowance, and a basic-rate beneficiary pays 18% rather than the flat 24%.
With three beneficiaries that is £9,000 of allowances rather than £3,000, before any saving on the rate. It has to happen before the sale is agreed, so raise it early rather than once the property is under offer.
Personal representatives must report and pay any CGT due on the sale of UK property within 60 days of completion. As with IHT, executors can be personally liable for losses caused by their mistakes, so professional advice is strongly recommended where there is any uncertainty.
Income tax considerations for executors
Income tax is another obligation executors must consider. An estate can generate taxable income in several ways: rental income from a property, interest on savings, or dividends from shares held by the estate. This income may need to be reported to HMRC.
If the estate cannot use HMRC’s informal arrangements, the executor must complete a Trust and Estate Tax Return (form SA900), detailing income received and any tax due. Keeping accurate records of all income and expenditure throughout the administration period is essential.
Not every estate needs one. Where the estate’s total income for a tax year is £500 or less, no tax is due and a return is usually unnecessary. Above that, the estate pays tax on the whole amount, not just the excess.
There is one more job at the end. When you pass estate income to a beneficiary, you must give them a certificate called an R185. They use it to declare the income on their own tax return and claim credit for the tax the estate has already paid. Beneficiaries cannot file correctly without it.
Rental income and the estate
If the estate includes a rental property, income it generates may be subject to income tax during the administration period. Unless the estate’s total income for the tax year is £500 or less, the executor must report this to HMRC and pay any tax due.
Certain expenses are deductible from rental income before tax is calculated. These include costs for property repairs, maintenance, and management fees. Detailed records of all income and expenses will support accurate reporting and help avoid errors.
Finalising the estate’s tax affairs
Once all tax liabilities have been settled, the executor can proceed to close the estate’s tax affairs. This means submitting final tax returns to HMRC, including the Trust and Estate Tax Return and any necessary amendments to the deceased’s personal tax return for the year of death.
The executor must resolve all outstanding tax matters before distributing assets to beneficiaries. The executor can apply to HMRC for a clearance certificate, on form IHT30, confirming that the inheritance tax position is settled. Clearance is worth having before you distribute, because once the estate has been paid out it is far harder to recover money if something further comes to light.
Record-keeping and reporting to HMRC
Throughout probate, the executor must keep detailed records of every financial transaction relating to the estate. This includes income received, expenses incurred, and all taxes paid.
Good records support accurate reporting and are essential if HMRC opens an inquiry. Therefore, comprehensive and well-organised financial records are not optional: they are a core part of the executor’s role.
The executor’s tax responsibilities
The executor’s tax responsibilities in a UK probate are extensive. They span valuing the estate, calculating IHT, CGT and income tax liabilities, reporting to HMRC, and settling each liability before distributing the estate.
Executors and administrators can be personally liable for unpaid tax and for losses caused by their errors. For that reason, anyone unsure of their obligations should seek advice from a qualified professional before filing or paying. You can book a free consultation through The Probate Network.
Frequently asked questions
What is the inheritance tax nil-rate band in 2026?
The inheritance tax nil-rate band for 2026/27 remains at £325,000 per person, frozen since 2009. An additional residence nil-rate band of up to £175,000 can apply if the deceased left their main home to children or grandchildren, potentially giving a combined threshold of £500,000. Married couples and civil partners can combine their allowances for a potential joint threshold of up to £1 million.
When must inheritance tax be paid?
IHT is normally due by the end of the sixth month after the month of death. For example, a death in January means IHT is due by 31 July. HMRC charges interest at 7.75% per annum on amounts paid late. In practice, at least a partial payment is needed before HMRC will issue the documentation required to apply for a grant of probate.
Does selling a probate property trigger capital gains tax?
CGT arises only if the property has increased in value between the date of death and the date of sale. The key figure is the probate value: the market value on the date the person died, not what the deceased originally paid for the property. Personal representatives selling during estate administration pay CGT at a flat rate of 24% on residential property gains. The estate’s annual exempt amount of £3,000 can reduce the taxable gain if the sale is in the tax year of death or either of the following two tax years.
What records must an executor keep for HMRC?
The executor must keep a full record of all financial transactions throughout the administration of the estate. This includes details of all income received (rent, interest, dividends), expenses incurred, taxes paid, and the values of assets at the date of death and at the point of sale. These records support accurate tax returns and are essential if HMRC raises a query or opens an inquiry into the estate’s affairs.
This article is for general guidance only and does not constitute legal, tax or financial advice. Rules and thresholds can change and every estate is different. For advice on your own circumstances, speak to a qualified professional. You can book a free legal consultation through The Probate Network.
