Capital gains tax on inherited property: what executors and beneficiaries need to know
When someone dies and their estate includes property, capital gains tax (CGT) can arise at two points: when the estate sells the property, or when a beneficiary sells it later. Understanding how CGT applies to inherited property helps executors and beneficiaries plan ahead and avoid unexpected tax bills.
This guide explains the current rules, the rates that apply, and the legitimate ways to reduce the amount of CGT you pay.
What is capital gains tax?
Capital gains tax is a tax on the profit you make when you sell or dispose of an asset that has risen in value. You pay CGT on the gain, not the full sale price.
A disposal includes selling the asset, gifting it, exchanging it, or receiving compensation for it, for example an insurance payout. CGT applies to disposals of property (other than your main home), shares held outside an ISA, business assets, and personal possessions disposed of for £6,000 or more.
In other words, CGT does not normally apply when you sell your only or main home, provided that full Private Residence Relief is available. It applies to second homes, buy-to-let properties, and inherited property you have not lived in as your main residence. CGT also does not apply to Individual Savings Accounts (ISAs) or Personal Equity Plans (PEPs).
What is inheritance tax, and how is it different from CGT?
CGT is sometimes confused with inheritance tax (IHT). They are separate taxes and work in entirely different ways.
IHT is a tax on the estate of the person who died. The estate normally pays it before assets pass to beneficiaries. You do not normally pay IHT if the value of the estate falls below the available inheritance tax thresholds. IHT is usually charged at 40% on the part above those thresholds, after any exemptions and reliefs.
CGT, by contrast, applies later, when an asset such as a property is sold or disposed of at a profit. Both taxes can apply to the same estate, but they are calculated separately and at different stages of the administration process.
How does CGT apply to inherited property?
One of the most important rules in UK tax is that there is no CGT charge when someone dies. Assets pass to the personal representatives (executors or administrators) at market value on the date of death, but no tax is charged on that uplift.
Any unrealised gain that accumulated during the deceased’s lifetime is effectively wiped clean. The personal representatives, and ultimately the beneficiaries, start with a new base cost equal to the market value at the date of death. This is often called the probate value.
Getting that figure right matters more than people realise, because it pulls in two directions. A low probate value reduces inheritance tax on the estate, but it increases the capital gain later. A higher value does the opposite.
This is not something to guess at. If a value has been formally ascertained for inheritance tax, it is generally used for CGT too. Paying inheritance tax does not, by itself, mean that every asset value has been formally agreed. Where no inheritance tax was due, HMRC can still challenge a figure that looks too low when the property sells soon afterwards for much more. A proper written valuation from a RICS surveyor is the best protection.
CGT therefore arises only if the property rises in value after the date of death. If the estate sells the property, the estate pays any CGT on the gain. If the property transfers to a beneficiary, they pay CGT when they later sell, based on the increase in value since the date of death.
Who pays CGT on inherited property?
If the estate sells the property during the administration period, the estate is liable for CGT. Personal representatives pay CGT at a flat rate of 24% on all gains. They do not benefit from a basic-rate band.
If the property transfers to a beneficiary and they sell it later, the beneficiary pays CGT on any gain above the probate value. The rate depends on the beneficiary’s own income tax position in the year of sale.
The option many executors miss
Those two routes are not the only choice, and the difference can be large. Before selling, executors can formally hand the property to the beneficiaries. This is called appropriation, and it is usually done by a short deed. The executors can still handle the sale afterwards.
The effect is that the beneficiaries, not the estate, become liable for the tax. That matters for two reasons. Each individual beneficiary may use any available part of their own £3,000 annual exempt amount, rather than the estate sharing a single allowance. A beneficiary pays 18% on any part of the gain that falls within their unused basic-rate band, rather than the estate’s flat 24%; any excess is taxed at 24%.
If three individual beneficiaries each have their full allowance available, that can provide £9,000 of allowances instead of £3,000, before any rate saving. Appropriation has to happen before the sale is agreed, so raise it with your solicitor early rather than after the property is under offer.
Executors holding inherited property during the administration period may consider a probate estate loan to cover CGT liability or ongoing property costs until the estate is distributed.
CGT rates on inherited property: what you pay in 2026/27
For the 2026/27 tax year, CGT on residential property is charged at 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers. Personal representatives administering an estate pay a flat 24% on all gains.
To work out whether you pay 18% or 24%, add your taxable gain to your other income for the year. If the combined total falls within the basic-rate income tax band, you pay 18%. Any portion above that band is taxed at 24%.
The annual exempt amount
The annual exempt amount for 2026/27 is £3,000. This is the tax-free slice deducted from your gain before CGT is calculated. It is a use-it-or-lose-it allowance. Any unused portion cannot be carried forward to future years.
Executors get the same £3,000 between them, but only for a limited time. The allowance is available for the tax year in which the person died and the two tax years after that. Once those three years have passed, the estate has no allowance at all, and every pound of gain is taxable. Long-running administrations are caught by this regularly, so it is worth knowing the cut-off date early.
How to calculate your gain
To work out your taxable gain, take the sale price of the property and subtract:
- the probate value (your base cost)
- any allowable expenses, such as legal fees, estate agent fees, and the cost of improvements made to the property before the sale
Then deduct your £3,000 annual exempt amount. What remains is your taxable gain.
Calculating CGT liability on inherited property can be complex. If you have questions, request a consultation with a probate specialist.
The 60-day reporting rule
There is a strict deadline for reporting and paying CGT on UK residential property. If CGT is due, you must report the disposal and pay the tax within 60 days of completion through HMRC’s CGT on UK property service. If you are registered for Self Assessment, you must also include the disposal on your annual return.
Late filing attracts automatic penalties and interest. Do not wait for your annual tax return to deal with this.
How to reduce capital gains tax on inherited property
There are several legitimate ways to reduce CGT when selling probate property. The right approach depends on your circumstances.
Sell or transfer quickly
If you sell the inherited property shortly after the date of death, there may be little or no increase in value over the probate value. A smaller gain means less CGT to pay. Where the property has not risen in value at all, there may be no CGT liability.
Transfer to a spouse or civil partner
There is normally no CGT to pay when you give or sell inherited property to your husband, wife or civil partner. The couple must normally be living together at some point in the tax year of the transfer for this to apply, although separate rules can extend the relief after separation. Your partner will then pay CGT on any gain when they eventually sell, using the transferring partner’s base cost, which will usually start with the probate value.
Use both partners’ annual exempt amounts
Married couples and civil partners each have their own annual exempt amount of £3,000. Transferring inherited property into joint names before a sale can therefore reduce the taxable gain, if both exemptions are available.
Claim Private Residence Relief
If you move into the inherited property and make it your main home, you can claim Private Residence Relief (PRR) for the period you genuinely live there. PRR does not apply if you sell without ever having lived in the property.
Where PRR applies, you pay no CGT for the period the property was your main residence. If you lived there for only part of the time you owned it, the relief applies proportionally and still reduces the taxable amount. You must be able to demonstrate genuine occupation: HMRC may consider factors such as where you were registered to vote, where your post was sent, and how long you lived there. You can read the full rules in HMRC’s Private Residence Relief guidance.
One extra slice comes free. If the property was genuinely your main home at any point, the final nine months of your ownership always qualify for the relief. That covers the period while the property is on the market, even after you have moved out.
There is also a version of this relief for executors. If, immediately before and immediately after the death, the property was the only or main home of one or more people who are together entitled to at least 75% of the net sale proceeds, the executors may claim relief on a sale. A surviving spouse still living in the family home is the usual example. It is easy to miss, and it can remove the tax bill entirely.
Use allowable expenses
When calculating your gain, claim every allowable expense you are entitled to. You can deduct qualifying legal and estate agents’ fees connected with the sale, and the cost of capital improvements made to increase the property’s value that are still reflected in it when sold, such as an extension. Routine maintenance does not qualify.
Executors can claim one extra deduction. HMRC allows a set amount towards the cost of establishing legal title to the deceased’s assets, calculated on a published scale according to the value of the estate. Your solicitor or accountant will know the current figures.
Offset capital losses
Capital losses on property can be offset against other capital gains in the same tax year. If you have no other gains, unused losses are carried forward indefinitely. There is a catch, though. You have to tell HMRC about a loss within four years of the end of the tax year in which it arose. Miss that window and the loss is gone.
Executors may have another option when land is sold at a loss. If the estate sells land or property within four years of death for less than its date-of-death value, they may be able to claim inheritance tax loss relief. A successful claim substitutes the sale value for the date-of-death value for inheritance tax, but it can also bring other land sales during the relevant period into the calculation, including sales at a gain. It produces an inheritance tax repayment only if the estate paid too much inheritance tax as a result.
Use Gift Aid and pension contributions
Making pension contributions or Gift Aid donations in the same tax year can extend your basic-rate income tax band. That can bring more of your gain into the 18% band rather than the 24% band, reducing the overall tax bill.
Gift the property to charity
Gifting inherited property to a registered charity is fully exempt from CGT.
Consider hold-over relief
Hold-over relief defers CGT by passing the gain to the person receiving the asset. They then pay the tax when they eventually sell. It is narrower than many people assume, and it will not usually help with an inherited house.
There are two versions. The first covers gifts of business assets, such as shares in a trading company or premises used in a trade. Residential property held as an investment does not qualify. The second covers gifts that are immediately taxable for inheritance tax, which in practice means transfers into most trusts.
So simply giving an inherited house to a family member does not attract the relief. That gift counts as a disposal at market value, and CGT is due on the gain even though no money changed hands. Take advice before making any gift of this kind.
Business Asset Disposal Relief
Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief, applies to qualifying business asset disposals. Residential investment property does not usually qualify. From 6 April 2026, the BADR rate is 18% on qualifying gains up to a £1 million lifetime limit. If you believe the inherited property was genuinely used for business purposes and meets the qualifying conditions, speak to a tax adviser before assuming any relief applies.
In summary: calculating CGT on inherited property
To work out how much CGT you owe when you sell inherited property, you need to establish:
- the probate value of the property (your base cost)
- the sale price
- any allowable expenses incurred
- your £3,000 annual exempt amount, and whether it is still available to the estate
- any other reliefs or exemptions that apply
You will not receive a bill automatically. UK residential property disposals that produce a taxable gain must be reported and the tax paid within 60 days of completion, using HMRC’s CGT property disposal service. Executors holding inherited property during the administration period may also consider a probate estate loan to cover CGT liability or ongoing costs until the estate is distributed.
Frequently asked questions
What is the capital gains tax rate on inherited property in the UK?
For the 2026/27 tax year, CGT on residential property is charged at 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers. Personal representatives administering an estate pay a flat 24% on all gains. The rate that applies to a beneficiary depends on their total income in the tax year of sale.
Do I pay CGT when I inherit a property?
No. There is no CGT charge when someone dies. Assets pass to the personal representatives at the market value on the date of death, and no tax is charged on that uplift. CGT only becomes due if the property is later sold or disposed of at a gain above its probate value.
How can I reduce capital gains tax on inherited property in the UK?
There is no single method that eliminates CGT in every case, but several legitimate approaches can reduce it. These include selling the property quickly before it rises in value, moving into the property and claiming Private Residence Relief, transferring the property into joint names with a spouse or civil partner to use both available annual exempt amounts, and deducting all allowable expenses from the gain. Gifting the property to a registered charity is also fully exempt. A probate specialist can advise on which options suit your specific situation.
How long do I have to report and pay CGT on an inherited property?
If you sell a residential property in the UK and make a taxable gain, you must report the disposal and pay the CGT owed within 60 days of the completion date. This is done through HMRC’s online CGT on UK property service. If you are registered for Self Assessment, you must also include the disposal on your annual return. Missing the deadline results in automatic penalties and interest charges.
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.
