You don’t pay Capital Gains Tax when you inherit property in the UK, but you will face CGT liability if you later sell inherited property for more than its probate value – the tax applies only to the profit made since inheritance, making proper understanding of your obligations essential for effective financial planning.
The latest HMRC statistics reveal a stark reality for inheritors: the annual CGT allowance has plummeted dramatically from £12,300 in 2020-2021 to just £3,000 in 2025-2026, meaning more people now face tax bills when selling inherited properties. With basic rate taxpayers paying 18% and higher rate taxpayers facing 28% on residential property gains, understanding your CGT exposure has become more important than ever for families dealing with inherited assets.
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Do you pay capital gains tax on inherited property?
Capital Gains Tax becomes relevant only when you dispose of inherited property, not during the inheritance process itself. The property receives what’s known as a “stepped-up basis” – its value is reset to the probate value (market value at death), effectively wiping out any gains that occurred during the deceased’s ownership.
This means if your grandfather bought his house for £50,000 in 1980 and it was worth £300,000 when he passed away in 2024, your base cost for CGT calculations would be £300,000, not the original £50,000. You’d only pay CGT on any increase above this probate value when you eventually sell.
When Do You Pay Capital Gains Tax on Inherited Property?
CGT liability arises in several specific circumstances:
Property sale above probate value – The most common scenario where you sell for more than the death valuation
Gifting to non-spouses – Transferring ownership to anyone other than your spouse or civil partner
Converting to rental property then selling – Using the property for investment purposes before disposal
Partial sales – Selling a portion of the property or your share to other beneficiaries
The key point is timing: CGT clock starts ticking from the probate value, not from when the deceased originally purchased the property.
How Much Capital Gains Tax Will I Pay on Inherited Property Sale?
The amount of CGT depends on your total income and the size of your gain. Understanding the calculation helps you plan effectively for potential tax liabilities.
Your CGT rate is determined by your income tax bracket. Basic rate taxpayers (earning up to £50,270) pay 18% on residential property gains, while higher and additional rate taxpayers face 28%. The calculation works by adding your capital gain to your other income – if this pushes you into a higher tax bracket, the excess gain is taxed at the higher rate.
For example, if you’re a basic rate taxpayer with £45,000 annual income and make a £20,000 capital gain, £5,270 of the gain would be taxed at 18% (keeping you in basic rate), while £14,730 would be taxed at 28% (the amount pushing you into higher rate territory).
CGT Calculation Example for Inherited Property
The following table demonstrates how CGT is calculated on inherited property sales, showing the step-by-step process:
| Calculation Step | Example Amount | Notes |
|---|---|---|
| Property probate value | £300,000 | Value at date of death |
| Sale price | £350,000 | Actual sale amount |
| Selling costs (estate agent, solicitor) | £8,000 | Deductible expenses |
| Gross gain | £42,000 | £350,000 – £300,000 – £8,000 |
| Annual CGT allowance (2025-26) | £3,000 | Tax-free threshold |
| Taxable gain | £39,000 | £42,000 – £3,000 |
| CGT due (higher rate taxpayer) | £10,920 | £39,000 × 28% |
This calculation shows how even modest property appreciation can result in significant tax bills, particularly with the reduced annual allowance. The selling costs are fully deductible, including estate agent fees, solicitor costs, and any improvement expenses that added value to the property.
Do I Pay Capital Gains Tax If Inherited Property Decreases in Value?
No, you don’t pay CGT if the inherited property sells for less than its probate value. Instead, you can register a capital loss with HMRC, which offers valuable tax planning opportunities.
Capital losses can be offset against other capital gains in the same tax year or carried forward indefinitely to reduce future gains. This makes accurate record-keeping essential – you must formally register the loss with HMRC to use it later.
Consider Margaret from Sheffield, whose inherited property was valued at £280,000 at probate but sold for £260,000 due to a local market downturn. She registered a £20,000 capital loss that she later used to offset gains from selling shares, saving thousands in tax.
Reddit Insights: Real Experiences with Inherited Property CGT
Property Saviour has observed common patterns from online discussions about inherited property taxation. One person shared their experience: “The house sat empty for nearly two years while I decided what to do. I was paying council tax, utilities, and insurance while watching property values rise – my potential CGT bill was growing every month.”
This highlights a key consideration: delaying decisions on inherited property can increase your tax liability as values continue to appreciate. Another Reddit user noted: “I thought I’d rent out my Dad’s house until the market improved, but between income tax on the rent and eventually higher CGT, I would have been better off selling immediately.”
These real-world experiences demonstrate why quick, informed decisions often prove most beneficial financially. Property Saviour understands these pressures and provides guaranteed sale options that offer certainty during emotionally challenging times, helping families avoid prolonged decision-making that can increase tax burdens.
How Long Do I Have to Pay Capital Gains Tax on Inherited Property?
You must report and pay CGT within 60 days of completing the property sale. This represents a significant change from traditional annual self-assessment reporting and catches many people unprepared.
The 60-day deadline applies even if you’re already registered for self-assessment. Missing this deadline results in penalties and interest charges, so preparation is essential. You’ll need to create a Government Gateway account, complete a UK Property Account report, and make payment directly to HMRC.
This tight timeframe is another reason why planning your approach to inherited property early can help avoid last-minute complications and potential penalties.
Can I Avoid Capital Gains Tax on Inherited Property?
Several legitimate strategies can reduce or eliminate CGT liability on inherited property:
Primary Residence Relief applies if you move into the inherited property as your main home. The period you live there is exempt from CGT, though you may face proportional charges for time it was empty or rented out.
Spouse Transfers are completely exempt from CGT. You can transfer ownership to your spouse or civil partner without any tax implications, though they would face CGT if they later sell.
Charity Donations of inherited property are exempt from CGT, though this obviously means giving up the asset entirely.
Annual Allowance Planning involves timing sales to maximise use of the £3,000 annual exemption across multiple tax years.
Take James from Birmingham, who inherited his aunt’s property valued at £250,000. Rather than sell immediately, he moved in for two years before selling for £275,000. The Primary Residence Relief eliminated most of his CGT liability, saving him approximately £7,000 in tax.
What Happens If the Estate Sells the Property Instead of Me?
When executors sell property during probate administration, the estate itself may face CGT liability if the sale price exceeds the probate value. However, estates benefit from their own annual CGT allowance for the year of death and the following two years.
This can sometimes be more tax-efficient than transferring the property to beneficiaries first. The estate’s CGT allowances might absorb the gain entirely, or the tax burden could be split across multiple years.
The decision between estate sale versus beneficiary inheritance and subsequent sale requires careful consideration of the specific circumstances and potential tax implications for all parties involved.
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