Capital Gains Tax on Inherited Property: A Guide for Executors and Beneficiaries
Inheriting a house, a flat or a piece of land raises one question almost immediately. If we sell it, is there tax to pay? Usually there is, and how much depends on decisions taken months before anyone has thought about tax at all. That is why we like to look at inherited property while the choices are still open.
Here is how it works when property comes out of an estate, and where the money is won or lost.
Nobody Pays Capital Gains Tax on Death
There is no Capital Gains Tax charge when someone dies. Everything the deceased owned is instead treated as passing at its market value on the date of death, and any gain built up during their lifetime falls away for CGT purposes.
That date of death value becomes the acquisition cost, so only the increase in value after death is taxable. It puts a great deal of weight on a single number.
The Probate Value Is Your Base Cost
Where a value has been ascertained for Inheritance Tax, the same figure must be used as the CGT acquisition cost. HMRC has specific rules to stop the two taxes running on different numbers.
This is where the planning sits. A low probate value keeps Inheritance Tax down but leaves a larger capital gain when the property sells. A higher, well evidenced valuation does the opposite. Where no Inheritance Tax is due, because everything passes to a spouse or the estate sits under the threshold, the value may never be ascertained, which leaves room to agree a properly supported figure later.
We would far rather look at this while probate is being applied for than a year afterwards. One formal valuation, obtained at the right moment, is often the most valuable piece of paper in the file.
Selling While the Estate Is Still Being Administered
If the executors sell before transferring the property, the gain belongs to the estate, and two things follow.
First, personal representatives pay a flat 24% on gains, whatever the size of the gain. There is no lower band available to them.
Second, the estate gets one full annual exempt amount for the tax year of death and for each of the two tax years that follow. That is £3,000 a year for 2026/27. Sell in the third tax year after death and there is no allowance, which is a good reason to watch the calendar.
Executors can also deduct a share of the cost of establishing title, such as probate and legal fees, using HMRC’s published scale in Statement of Practice SP2/04 or the actual figures where known.
Or Transferring It to the Beneficiaries First
Passing the property to beneficiaries is not a disposal, so no CGT arises on the transfer itself. They are treated as having acquired it on the date of death, at the date of death value.
They then sell in their own names, using their own annual exempt amounts and their own rates. For 2026/27, residential property gains are taxed at 18% within the basic rate band and 24% above it. Three siblings, each with a £3,000 allowance and some basic rate headroom, will often pay considerably less between them than the estate would on the same sale.
The trade off is time and control: transferring into joint names adds a Land Registry step, and everybody then has to agree to the sale. Which route wins is arithmetic, and worth working out before the property goes on the market.
When the Property Was Somebody’s Home
There is a relief here worth knowing about. Where an individual occupied the property as their only or main residence immediately before and immediately after the death, and is entitled to at least 75% of the net sale proceeds, the executors can claim Private Residence Relief on the sale.
It is a claim rather than an automatic exemption, so somebody has to make it. In a family where one child lived with a parent and inherits most of the estate, this relief can remove the gain altogether.
Reporting and Paying
A sale of UK residential property that produces a CGT liability has to be reported to HMRC within 60 days of completion, not exchange. Personal representatives report inside the same window but do not pay at the same time, because HMRC writes to them with the amount due and how to settle it. We covered the mechanics in our guide to the 60 day reporting rule.
Non-resident executors and beneficiaries have a stricter obligation. Every disposal of UK land must be reported within 60 days, even where there is no tax to pay. If the property is let while the estate is settled, the rental profits need declaring too, so it may be time to register for Self Assessment.
Where We Would Start
Three questions answer most of it. What was the property worth on the date of death, and how well evidenced is that figure? Who should make the sale, the estate or the beneficiaries? And when, relative to the tax year of death?
Answered early, the tax becomes a planned number. Answered after completion, the options have mostly gone.
We do this work for families across Oxfordshire, from our offices in Witney and Frilford through to our clients and accountants in Bicester, alongside our wider accountancy services and our Self Assessment service. Where a case is more involved, our specialist tax advice work covers inherited and overseas property, with a clear price range agreed before we start.
If you have inherited property and want to know where you stand before you commit to anything, let us look while the choices are still open.