You don’t pay Capital Gains Tax (CGT) when you initially inherit property in the UK, but you will likely face CGT liability if you later sell the inherited property for more than its probate value-the tax applies only to the profit or ‘gain’ made since inheritance, not on the entire property value itself, making the timing of inheritance and subsequent sale crucial for tax planning.
According to the latest HMRC data available in May 2025, the annual CGT allowance currently stands at just £3,000, representing a dramatic reduction from the £12,300 allowance that was available in the 2020-2021 tax year. This significant decrease has resulted in more beneficiaries facing CGT liability on inherited properties, with basic rate taxpayers now paying 18% on residential property gains and higher rate taxpayers facing a substantial 28% rate on these same gains.
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Do you pay capital gains tax on inherited property?
You don’t pay Capital Gains Tax (CGT) when you initially inherit property in the UK, as inheritance itself isn’t a taxable event for CGT purposes. Instead, the property is valued at the date of death (known as the ‘probate value’), which becomes your acquisition cost for future CGT calculations. However, if you later sell the inherited property and it has increased in value since probate, CGT becomes payable on the profit made.
For example, if you inherit a house valued at £300,000 at probate and later sell it for £350,000, you’d pay CGT on the £50,000 gain (minus your annual CGT allowance, which as of 2025 stands at £3,000). The rate you’ll pay depends on your income tax band-18% for basic-rate taxpayers or 28% for higher and additional-rate taxpayers on residential property.
Important exemptions exist: if you move into the inherited property as your main residence, you may qualify for full or partial Private Residence Relief. Additionally, if you sell at a loss compared to the probate value, you can register this capital loss with HMRC to offset against other gains in the same tax year or carry it forward indefinitely. Remember that since April 2020, you must report and pay any CGT on UK residential property sales within 60 days of completion-missing this deadline can result in penalties and interest charges.
How Is Capital Gains Tax Calculated on Inherited Property?
When inheriting property in the UK, the property receives what’s known as a “stepped-up basis” for tax purposes. This means the property’s new base value becomes its market value at the date of death, not the price the deceased originally paid for it. This stepped-up basis effectively wipes out any gains that occurred during the previous owner’s lifetime.
The capital gains tax is then only applied to the difference between this probate value and the final selling price, minus any allowable expenses. This calculation method can significantly reduce your potential tax liability compared to if the property were valued based on its original purchase price.
For example, if your late aunt purchased her home for £100,000 in 1990, and it was valued at £300,000 at the time of her death in 2024, your base cost for CGT calculations would be £300,000. If you then sell the property for £350,000 in 2025, CGT would only apply to the £50,000 gain, not the full £250,000 increase from the original purchase price.
Do I Pay Capital Gains Tax on an Inherited Property?
Yes, you must pay Capital Gains Tax if you sell an inherited property and make a profit on the sale based on its probate value. However, CGT doesn’t apply at the moment of inheritance-only when you eventually dispose of the property for more than its probate value.
The tax liability arises only if there’s an increase in value between the date of death and the date you sell. If the property’s value stays the same or decreases, there would be no CGT to pay-in fact, you might be able to claim a capital loss that could offset gains from other assets.
It’s worth noting that CGT generally doesn’t apply if the inherited property becomes your main residence immediately after inheritance and remains so until you sell it. This primary residence exemption (also known as Private Residence Relief) can eliminate CGT liability completely in some cases.
What Is Capital Gains Tax on Inherited Property?
Capital Gains Tax on inherited property works differently from other taxes you might be familiar with. It’s not a tax on the inheritance itself (that would be Inheritance Tax) but rather on any profit made when you eventually sell the property.
The current CGT rates specifically for residential property in the 2025/26 tax year are:
| Taxpayer Status | CGT Rate on Property | Annual Tax-Free Allowance | Example Calculation for £50,000 Gain |
|---|---|---|---|
| Basic Rate (income up to £50,270) | 18% | £3,000 | (£50,000 – £3,000) × 18% = £8,460 |
| Higher/Additional Rate (income above £50,270) | 28% | £3,000 | (£50,000 – £3,000) × 28% = £13,160 |
This table illustrates how your income tax band directly affects the rate of CGT you’ll pay on inherited property. The significant difference between the 18% and 28% rates makes it important to understand which tax bracket you fall into when planning to sell an inherited property. This can be particularly relevant if you’re near the threshold between basic and higher rate tax, as the additional proceeds from a property sale could push you into the higher rate, increasing your CGT liability substantially.
How Much Capital Gains Tax Is Due on an Inherited Property?
The exact amount of Capital Gains Tax due depends on several factors, including the increase in value since probate, your income tax band, and any deductible expenses. Here’s how to calculate your potential CGT liability in four steps:
Determine the gain: Subtract the probate value from the sale price.
Example: £350,000 (sale price) – £300,000 (probate value) = £50,000 (gross gain)Deduct allowable expenses: These include selling costs like estate agent fees, solicitor’s fees, and any capital improvements made to the property.
Example: £50,000 – £5,000 (expenses) = £45,000 (gain after expenses)Apply your tax-free allowance: Subtract your annual CGT allowance (£3,000 for 2025/26).
Example: £45,000 – £3,000 = £42,000 (taxable gain)Apply the appropriate tax rate: Use either 18% or 28% depending on your income tax band.
Example for higher rate taxpayer: £42,000 × 28% = £11,760 (CGT due)
Remember that your total taxable income for the year, including the capital gain, determines your tax band. If the gain pushes you from the basic rate into the higher rate band, you may pay 18% on part of the gain and 28% on the remainder.
How Does Capital Gains Tax Work with Gifts? Understanding Property Transfers
When it comes to gifting property rather than selling it, many people assume this avoids Capital Gains Tax altogether. However, this is a misconception that can lead to unexpected tax bills.
For CGT purposes, gifting a property is treated as a disposal at market value, even though no money changes hands. This means that if you inherit a property and later gift it to someone (other than your spouse or civil partner), you may still be liable for CGT if the property has increased in value since you inherited it.
The main exceptions to this rule are:
Gifts to your spouse or civil partner, which are exempt from CGT
Gifts to charities, which are generally exempt from CGT
It’s worth noting that the person receiving the gift will have a new base cost for any future CGT calculations, which will be the market value at the time they received the gift. This can create a cascading effect of CGT liability if properties are gifted multiple times within a family.
How CGT Applies to Inherited Assets?
While our focus is primarily on property, it’s important to understand that Capital Gains Tax applies to most inherited assets that appreciate in value after inheritance, not just real estate. Here’s a brief overview of how CGT applies to different types of inherited assets:
Shares and investments: CGT applies to gains if sold for more than their value at the date of death
Valuable possessions: Items worth more than £6,000 (like jewellery, art, or antiques) may be subject to CGT
Business assets: Special reliefs may be available for inherited business assets
Second homes/buy-to-let properties: Always subject to CGT unless they become your main residence
For most people, property represents the largest potential CGT liability among inherited assets due to its typically higher value and greater potential for appreciation. However, the basic principle remains the same across all asset types: you only pay CGT on the gain since inheritance, not on the entire value.
Do I Have to Pay Inheritance Tax on My Parents’ House Before Selling?
This question frequently causes confusion because it mixes two separate taxes: Inheritance Tax (IHT) and Capital Gains Tax (CGT).
Inheritance Tax is paid by the estate before assets are distributed to beneficiaries. If your parents’ home is part of their estate and the total estate value exceeds the IHT threshold (currently £325,000, with additional allowances for homes passed to direct descendants), then Inheritance Tax may be due at 40% on the amount above the threshold.
Crucially, this tax must be paid before you can obtain probate and legally inherit the property. In most cases, the executor handles this payment from the estate’s assets. If there aren’t enough liquid assets in the estate, the executor might need to:
Take out a loan to pay the IHT
Sell some assets within the estate to raise funds
Apply to pay IHT in instalments (specifically available for property)
Only after IHT is settled and probate granted would you then potentially face CGT if you later sell the property for more than its probate value. These are entirely separate tax events, often occurring months or years apart.
Do Beneficiaries Pay Tax on Inheritance?
As a beneficiary, you don’t pay Income Tax or Capital Gains Tax immediately on the inherited property itself. However, there are several tax implications you should be aware of:
No immediate tax: The act of inheriting property doesn’t trigger an immediate tax bill for you as a beneficiary.
Inheritance Tax: This would have been paid by the estate before you received the property, not by you personally (unless you were the executor and the estate had insufficient funds).
Future Capital Gains Tax: You will be liable for CGT if you sell the inherited property for more than its probate value.
Income Tax: If you earn rental income from the inherited property, this will be subject to Income Tax at your normal rate.
Council Tax: You become liable for council tax on the property from the date you inherit it, even if you don’t live there.
It’s important to understand that while receiving the inheritance itself isn’t taxable for you personally, what you do with the property afterwards may have tax implications. Many beneficiaries are surprised by their CGT liability when they eventually sell, especially if they’ve held onto the property for several years during a rising market.
Do Executors Get a Capital Gains Tax Allowance When Selling During Probate?
When an executor sells a property during the probate process before it’s distributed to beneficiaries, the situation regarding Capital Gains Tax becomes slightly different. In this scenario:
The gain is treated as accruing to the estate, not to the executor personally
The estate is entitled to the annual CGT allowance (currently £3,000)
The tax rate is fixed at 28% for property (estates don’t have tax bands like individuals)
The executor is responsible for completing the tax return and ensuring payment, but the tax comes from the estate’s assets
Executors should be aware that if property values are rising rapidly, there may be advantages to distributing the property to beneficiaries first rather than selling it from within the estate. This would allow multiple beneficiaries to each use their own CGT allowance, potentially reducing the overall tax burden.
However, if values are falling, selling during probate might be advantageous as it locks in the probate value as the base cost, potentially creating a loss that could be useful for tax planning within the estate.
Can I Gift a Property to My Son and Avoid Capital Gains Tax?
Many parents and grandparents consider gifting property to younger family members as a way to help them onto the property ladder while potentially reducing tax liabilities. However, the CGT implications aren’t as straightforward as many believe.
If you’ve inherited a property and are considering gifting it to your son or daughter, here’s what you need to know:
Your CGT liability remains: Gifting is treated as a disposal at market value for CGT purposes. If the property has increased in value since you inherited it, you may still be liable for CGT on the gain.
Potential future IHT implications: If you gift the property and then die within seven years, the property’s value might be included in your estate for Inheritance Tax purposes.
HMRC scrutiny: HMRC closely examines transactions between family members to ensure they’re genuine gifts and not attempts to avoid tax while retaining benefits (known as “gifts with reservation of benefit”).
Impact on the recipient: Your son would receive a new base cost for the property equal to its market value at the time of the gift, not its value when you inherited it.
The most tax-efficient approach depends on various factors including your age, health, the property value, and your longer-term intentions. Professional advice is essential before proceeding with family property transfers.
How to reduce capital gains tax when selling a property?
If you’re worried about potential CGT liability on an inherited property, there are several legitimate strategies that might help reduce your tax bill:
- Sell soon after inheritance: If you sell quickly after inheriting, there’s less time for the property to appreciate in value, potentially reducing or eliminating any gain.
- Make it your main home: If you move into the inherited property as your principal residence, you may qualify for Private Residence Relief, which could reduce or eliminate CGT when you eventually sell.
- Offset with capital losses: If you’ve incurred capital losses in the same tax year or have unused losses from previous years, these can be offset against your gain.
- Maximise deductible expenses: Keep detailed records of all improvement costs (not regular maintenance) as these can be deducted from your gain.
- Consider joint ownership: If the property was inherited by multiple beneficiaries, each can utilise their annual CGT allowance, potentially reducing the overall tax burden.
- Time your sale strategically: If possible, consider selling in a tax year when your other income is lower, potentially keeping you in the basic rate band and qualifying for the lower 18% CGT rate.
Eleanor from Bromsgrove found herself in this exact situation after inheriting her mother’s three-bedroom semi. “The property had been in our family for decades, but I already owned my own home and couldn’t afford the upkeep of two properties,” she explains. “I was gobsmacked to discover I’d face a substantial Capital Gains Tax bill if I sold, as the house had increased in value by nearly £80,000 since Mum passed away.” After struggling with this dilemma for months, Eleanor contacted Property Saviour. “They explained all my options clearly and offered a guaranteed purchase price that allowed me to plan exactly what my tax liability would be. The certainty this provided was absolutely brilliant during an already difficult time.” If you’re facing similar challenges with an inherited property, our team can provide clear guidance tailored to your specific situation.
The Realities of Selling Inherited Property: Insights from Real UK Experiences
From discussions across online forums, we’ve observed that many inheritors underestimate both the emotional and financial complexities of dealing with inherited property. One particularly insightful comment noted: “The house sat empty for nearly two years while I decided what to do. I was paying council tax, utilities, and insurance while also watching property values rise-which ironically meant my potential CGT bill was growing every month. In retrospect, I should have made a decision much sooner.”
At Property Saviour, we understand this hesitation. Inheriting property often comes during an already emotional time, and making major financial decisions while grieving can feel overwhelming. However, from a purely tax perspective, delays can sometimes lead to higher tax liabilities as properties continue to appreciate in value.
Another common theme from online discussions is confusion about the actual costs involved in keeping inherited property: “I thought I’d rent out my Dad’s house for a few years until the market improved, but between income tax on the rent, maintenance costs, and eventually higher CGT when I did sell, I probably would have been better off selling immediately.”
As a cash house buyer service, we’ve helped many clients who initially planned to keep inherited properties but later realised the financial and practical burden was greater than anticipated. Our straightforward purchase process offers certainty in what can otherwise be an uncertain time, with transparent pricing that helps you accurately calculate any potential tax implications.
Reporting & Paying Capital Gains Tax on Inherited Property
If you do sell an inherited property and incur a CGT liability, you must report and pay this tax within 60 days of the completion date (as of May 2025). This is a relatively recent change from the previous 30-day deadline but still represents a much shorter timeframe than the traditional annual self-assessment cycle.
The reporting process involves:
Creating or logging into your Government Gateway account
Completing a UK Property Account report with details of the sale and gain
Calculating the CGT due, taking into account your annual allowance and tax rate
Making payment directly to HMRC
This 60-day deadline applies even if you’re registered for self-assessment and would normally report capital gains on your tax return. Failing to meet this deadline can result in penalties and interest charges, so it’s important to prepare for this obligation in advance of completing the sale.
If you’re considering auctioning a house you’ve inherited, be aware that the 60-day countdown begins from the completion date, not the auction date itself. This compressed timeline is another reason why planning your approach to inherited property early can help avoid last-minute tax complications.
Making Informed Decisions About Inherited Property
Dealing with Capital Gains Tax on inherited property requires careful planning and consideration of your specific circumstances. While the tax implications are important, they shouldn’t be the only factor in your decision-making process. Emotional attachments, practical considerations, and your broader financial situation all play important roles in determining the best approach.
If you’re feeling overwhelmed by the prospect of selling an inherited property and navigating the tax implications, remember that you don’t have to face these challenges alone. At Property Saviour, we understand that every inheritance situation is unique and comes with its own set of emotional and practical considerations.
As a professional we buy any house service, we offer a compassionate approach to property purchases, providing clear, straightforward advice without obligation. Our team can help you understand the potential tax implications of different selling approaches, offering guaranteed purchase prices that provide certainty during what is often an uncertain time.
Whether you’re looking to sell quickly to minimise potential CGT liability or need time to make the right decision, we’re here to help with flexible timelines and a process designed around your needs. Contact Property Saviour today for a confidential discussion about your inherited property and how we might be able to help you move forward with confidence.
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