Do you pay Capital Gains Tax on inherited property?

Inheriting a property from a loved one can be both emotionally significant and financially complex. The process itself can be long and painful and that’s before you’re considering any potential tax bills that might arise. For many beneficiaries, one question is whether receiving the property creates a capital gains tax bill. Luckily, in most cases, the answer is no. You do not usually pay capital gains tax at the point you inherit a property.

However, a potential tax issue can arise later, if the property is sold, gifted, transferred, or otherwise disposed of after it has increased in value since the date of death. That distinction matters, particularly for larger estates investment portfolios or if there has been other taxable gains in the same year. A well timed decision can make a meaningful difference to the eventual tax bill. 

Arrange your free initial consultation

What is capital gains tax (CGT)?

Capital gains tax (CGT) is a tax that applies when an investment sells for more than its original purchase price, known as its base cost. We usually think of capital gains tax in terms of selling stocks from an investment portfolio, however, it also applies to other forms of investments such as property or tangible assets.

With capital gains tax, you are taxed on the profit, or “gain”, you make on the sale, rather than the whole amount you receive. For instance, if you bought a piece of artwork for £6,000 and later sold it for £36,000, the gain would be £30,000. This is the amount that your CGT liability would be calculated on, less any annual exempt amount that's available.

How much capital gains tax will I pay? 

The rate of CGT you pay is related to your income tax band. There are four tax rates bands:

Band	Taxable Income
Personal Allowance	Up to £12,570
Basic rate	£12,571 to £50,270
Higher rate	£50,271 to £125,140
Additional rate	Over £125,140

For residential property, the current CGT rates in the 2026/27 tax year are 18% for gains that fall within the personal allowance or basic rate band and 24% for gains that fall within the higher or additional rate bands and the annual exempt amount for individuals is £3,000. This means only gains above your available allowance are potentially taxable. 

Note: CGT is not payable on gains made when a residential property is your primary residence and always has been (apart from certain allowable absences). 

Does inheriting property trigger CGT?

Inheriting a property does not usually trigger capital gains tax immediately. HMRC states that you do not pay Capital Gains Tax when you inherit property.

Instead, the property is treated as being acquired at its market value on the date of death. This is often referred to as the probate value. If the property is later sold for more than that value, the increase in value may be subject to CGT.

For example, if you inherit a property valued at £500,000 on the date of death and later sell it for £575,000, the starting point for the CGT calculation is the £75,000 increase, not the full sale price. The taxable gain can then be reduced by things like your annual exception and allowable costs. 

Note: You are not able to carry forward any unused CGT allowance from previous tax years. 

How is the base value (probate value) determined for an inherited property?

The base value is normally the market value of the property on the date the previous owner died. This value is used for inheritance tax purposes and can also become the acquisition cost for CGT if the personal representatives or beneficiaries later dispose of the property.

For higher value properties, it is usually sensible to obtain a professional valuation rather than relying on a rough estimate. This is particularly important if the property is unusual, in a sought after area, jointly owned, let to tenants, or likely to be sold some time after probate.

The probate value (or base value) should be realistic and well evidenced. If it is too low, a later sale may appear to create a larger taxable gain. If it is too high, HMRC may challenge the valuation, especially where inheritance tax is also involved. Good records at this stage can make a future CGT calculation much easier.

When does CGT become liable on inherited property?

CGT can become liable when the inherited property is disposed of and has increased in value since the date of death. A disposal usually means selling the property, but it can also include gifting it, transferring it to someone else, or selling it for less than its market value.

If personal representatives sell the property during the administration of the estate, CGT may be due if the asset has risen in value since the person died or since it was valued for inheritance tax. HMRC confirms that transferring assets directly to a beneficiary does not itself create CGT for the estate.

If you receive the property as a beneficiary and later sell it, the gain is measured from the probate value to the disposal value. The longer you hold the property, and the more it increases in value, the greater the potential CGT exposure.

How to calculate CGT on inherited property?

To calculate capital gains tax on an inherited property, first work out the gain by subtracting the property’s probate value from the amount you receive when it is sold.

You can then deduct any allowable costs associated with the sale or improvements to the property. These may include estate agent and solicitor fees, as well as the cost of lasting improvements that increased its value, such as an extension, loft conversion or structural alteration. Routine maintenance, repairs, decorating and work that simply restores the property to its previous condition will not usually qualify.

Once these costs have been deducted, you can take off any unused CGT annual exempt amount. The remaining taxable gain is then added to your income for the tax year, which determines whether it is taxed at 18%, 24% or a combination of the two rates.

For example, if a property had a probate value of £500,000 and was sold for £575,000, the initial gain would be £75,000. After deducting £15,000 of allowable selling and improvement costs, the gain would fall to £60,000. If your £3,000 annual exempt amount remained available, the taxable gain would be £57,000. The amount of tax due would then depend on your wider income tax position.

What reliefs or exemptions may apply?

The most important relief for many people is private residence relief. If the inherited property becomes your only or main home, and you genuinely occupy it as such, some or all of the gain may be exempt from CGT when you sell.

However, the position depends on the facts. You usually need evidence that the property was genuinely your main residence, rather than a short term arrangement created only to reduce tax. HMRC may consider things like where you lived, where you were registered to vote, where your post was sent, and how long you occupied the property.

Married couples and civil partners can usually only have one main residence between them for CGT purposes. Unmarried couples may each have a different main residence, but this should still reflect the real living arrangements.

If the property is jointly inherited, each owner may be able to use their own annual exempt amount against their share of the gain. For the 2026/7 tax year, this is £3,000 per individual. Transfers between spouses and civil partners may also help with planning, although they should be considered carefully and completed before any sale is effectively agreed.

Total CGT = (taxable gain x tax rate)

If you’d like to check your calculations,  HMRC has a capital gains calculator which can do all the work for you.

Reporting and paying CGT on inherited property 

If CGT is due when you sell a UK residential property, you must usually report and pay it within 60 days of completion.

You may also need to include the disposal on your self assessment tax return. Any underpayment can then be settled, while an overpayment may be reclaimed.

Keep clear records of the probate value, sale price and allowable costs to help ensure the gain is calculated accurately.

Interaction with Inheritance Tax (IHT) and how it differs from CGT

Inheritance tax and capital gains tax are often confused, but they apply at different stages. Inheritance tax is generally considered on the value of the deceased person’s estate at death. Capital gains tax is concerned with any increase in value after death, when the property is later disposed of.

For example, if a property is worth £700,000 when someone dies, that value may be relevant for inheritance tax. If the beneficiary later sells the property for £800,000, the £100,000 increase may be relevant for capital gains tax.

This is why the date of death valuation is so important. It can affect the inheritance tax position for the estate and the CGT base cost for a future sale. Where the estate is large, the property is valuable, or several beneficiaries are involved, tax advice at probate stage can help avoid problems later.

Special cases and additional considerations

Several situations can make the CGT position more complex. If the property is rented out after inheritance, rental income may be subject to income tax, while any later increase in value may still be subject to CGT.

If the inherited property is held in a trust, the trustees may be responsible for tax depending on the type of trust and the beneficiary’s entitlement. HMRC notes that where a beneficiary becomes absolutely entitled to trust assets, trustees may pay CGT based on the market value at that point.

If the property is inherited by more than one person, each beneficiary is normally taxed on their share of the gain. This can make record keeping especially important, as each person’s tax rate and wider financial position may be different.

Non UK residents, second homes, overseas property, and properties with mixed personal and rental use can also require more detailed advice. The rules are not always intuitive, and a decision that looks simple from a family perspective may have tax consequences.

Strategies to minimise CGT liability on inherited property

Make an early decision. If the property is sold soon after death for close to the probate value, there may be little or no gain. Holding the property for several years may be sensible for personal or investment reasons, but it can increase the CGT exposure if the value rises.

Ensure the probate valuation is robust. A professional valuation can help support the base cost and reduce the risk of disputes later.

Make full use of available allowances and ownership structure. If the property is jointly owned, each beneficiary may have their own annual exempt amount. Married couples and civil partners may also consider transfers between them, provided this is done carefully and for genuine planning reasons.

Keep evidence of allowable costs. Legal fees, estate agent fees, and qualifying improvement works can all reduce the taxable gain. Without records, you may lose the benefit of deductions that would otherwise have been available.

Key steps for beneficiaries: what you need to know and do

If you inherit a property, start by confirming the probate value and keeping a copy of the valuation. Then decide whether the property will be sold, retained, rented out, transferred, or occupied as a main residence. Each option can have different tax consequences.

Before selling, estimate the likely gain and check whether a 60 day CGT report will be needed. Gather records of legal fees, estate agent fees, improvement costs, and any periods of occupation or letting. If more than one beneficiary is involved, agree who is responsible for collating information and instructing advisers.

You should also consider whether the sale interacts with your wider tax position. If you are already a higher or additional rate taxpayer, have investment gains, or expect a large bonus or pension withdrawal in the same tax year, planning ahead may help reduce unnecessary tax. 

How can we help?

If you are concerned about how much tax you may need to pay on an inherited property, or you want to understand how it fits into your wider financial plan, we can help. We can work with you to assess the likely CGT position, consider the interaction with inheritance tax, and identify practical steps that may reduce the tax payable.

If you would like to find out more about how we can help please get in touch and arrange a free initial consultation.

Arrange your free initial consultation

Please note that the Financial Conduct Authority (FCA) does not regulate estate planning, tax or trust advice.

This article is intended as information only and does not constitute financial advice.  

The information contained in this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing.  Levels, bases and reliefs from taxation may be subject to change.

This article has been updated and re-published following the changes announced at the Autumn Budget on 30th October 2024.