Capital Gains Tax on Inherited Property: A Seller's Guide

Inheriting a property does not trigger a Capital Gains Tax charge. CGT only becomes relevant when you sell, gift, or otherwise dispose of the property. At that point, HMRC looks at the difference between what you received for the property and its value at the date the previous owner died — not the price they originally paid for it. This distinction is central to how CGT works on inherited assets and is often misunderstood.

This guide explains how CGT applies when you sell an inherited property in England and Wales, how to calculate the taxable gain, which reliefs and allowances you can claim, and the reporting obligations you must meet. If you are still in the early stages of dealing with the estate, you may also want to read our guides on selling an inherited house and selling after probate.

How CGT works on inherited property

When someone dies, their assets are revalued at the date of death for Inheritance Tax purposes. This valuation — known as the probate value — also becomes the base cost for Capital Gains Tax if the person who inherits the asset later sells it. This principle is set out in section 62 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992), which provides that the legatee (the person who inherits) is treated as having acquired the asset at its market value at the date of death.

In practical terms, this means:

• You are not taxed on any gain the deceased made during their lifetime. That gain dies with them.
• Your taxable gain is the difference between the sale price and the probate value, minus any allowable deductions.
• If the property has fallen in value since the date of death, you may have an allowable capital loss that can offset other gains.

This is different from property you buy during your lifetime, where the base cost is simply the price you paid.

The probate valuation: your base cost

The probate valuation is the single most important figure in your CGT calculation. It is the open market value of the property at the date of death, as reported to HMRC by the personal representatives (executors or administrators) on the Inheritance Tax return.

The valuation must reflect what the property would have sold for on the open market at the date of death, taking into account its condition at that time. HMRC's guidance in their Inheritance Tax manual (IHTM09701) states that market value means the price the property might reasonably be expected to fetch if sold on the open market at that time.

Why accuracy matters

Getting the probate valuation right is critical because the figure serves two masters:

• Inheritance Tax. A higher probate value increases the value of the estate and may increase the IHT liability.
• Capital Gains Tax. A higher probate value increases your base cost, which reduces your taxable gain when you sell.

If the probate value was set too low — perhaps because a professional valuation was not obtained at the time — you will face a larger CGT bill when you sell. Conversely, if it was set too high, HMRC may query the IHT return. HMRC's Shares and Assets Valuation team can enquire into probate valuations, and they have access to property transaction data to check whether valuations are reasonable.

For this reason, it is always advisable to obtain a professional RICS (Red Book) valuation at the date of death, or at the very least a valuation from a qualified estate agent with local market knowledge. Keep a copy of this valuation — you will need it when you come to sell.

Calculating your taxable gain

The formula for calculating the taxable gain on an inherited property is straightforward:

Taxable gain = Sale price − Probate value − Allowable costs − Annual exempt amount

Allowable costs you can deduct

In addition to the probate value (your base cost), you can deduct the following from your gain:

• Improvement costs. Capital expenditure that enhanced the value of the property, such as building an extension, installing a new bathroom or kitchen, replacing the roof, or adding central heating. Routine repairs and maintenance (such as redecorating or fixing a boiler) are not allowable.
• Selling costs. Solicitor and conveyancing fees, estate agent fees, and any costs directly related to the disposal.
• Valuation costs. The cost of obtaining the probate valuation, if this was a professional valuation you paid for.
• Costs of establishing title. If you incurred legal costs to confirm your ownership — for example, costs related to the probate process — these may be deductible.

You cannot deduct mortgage interest, buildings or contents insurance, council tax, or the day-to-day costs of maintaining the property. Make sure you gather the documents needed to sell the house early so that you have receipts and invoices to support your deductions.

Worked example: CGT on an inherited property

Here is a worked example showing how CGT is calculated on a typical inherited property sale.

If the seller is a higher rate taxpayer, the CGT due would be £48,160 × 24% = £11,558.40. If they are a basic rate taxpayer with enough remaining basic rate band, the CGT would be £48,160 × 18% = £8,668.80. Where the gain straddles both bands, part is taxed at 18% and the remainder at 24%.

CGT rates on residential property (2025/26)

Residential property is subject to specific CGT rates that are higher than those for other types of asset. For the 2025/26 tax year, the rates are:

The rate you pay depends on your total taxable income for the year plus the capital gain. If you are a basic rate taxpayer, only the portion of the gain that fits within your remaining basic rate band is taxed at 18%. Any excess is taxed at 24%. This is an important consideration when timing the sale of an inherited property — selling in a year when your income is lower could result in a lower CGT bill. For more detail on CGT rates applied to property that is not your main home, see our guide on Capital Gains Tax when selling a second home.

The annual exempt amount

Every individual has an annual exempt amount for CGT, which for the 2025/26 tax year is £3,000. This was reduced from £6,000 in 2023/24 and £12,300 in 2022/23, making it a much less significant relief than it once was.

Key points about the annual exempt amount:

• It applies to your total capital gains in the tax year, not per disposal. If you sell an inherited property and also sell shares in the same year, the £3,000 must be split across both gains.
• It cannot be carried forward. If you do not use it in a given tax year, it is lost.
• If two or more beneficiaries inherit a property jointly, each has their own £3,000 allowance to set against their share of the gain.

Reliefs that can reduce or eliminate your CGT bill

Private Residence Relief (PRR)

Private Residence Relief is the most valuable CGT relief available to property owners. It exempts from CGT any gain attributable to periods during which the property was your only or main home. If you inherit a property and move into it as your main residence, the period you live there qualifies for PRR.

Important points about PRR on inherited property:

• PRR only covers your period of occupation after you inherited the property. The fact that the deceased person lived in the property as their home does not give you PRR.
• The final nine months of ownership are always covered by PRR, provided you lived in the property as your main home at some point during your ownership. This gives you a window to sell without CGT after you move out.
• If you already own a home and inherit a second property, you cannot claim PRR on both simultaneously. You can nominate which property is your main residence for any given period, but you must actively make this nomination.

If you lived in the inherited property as your only home for the entire period from inheritance to sale, the gain is fully exempt from CGT. If you lived in it for part of the time, the gain is apportioned on a time basis, and the period of occupation (plus the final nine months) is exempt.

Letting relief

Since 6 April 2020, letting relief is only available where you shared occupation of the property with a tenant. This means you must have lived in the property at the same time as a lodger or tenant for the letting relief to apply. Simply letting out a property that you used to live in no longer qualifies.

Where it does apply, the maximum letting relief is the lowest of:

• £40,000
• The amount of Private Residence Relief claimed
• The gain attributable to the letting period

In practice, very few inherited property sales now qualify for letting relief because the shared-occupation requirement is difficult to meet.

The 60-day reporting and payment deadline

Since 27 October 2021, UK residents who sell a residential property that is not their main home must report the disposal to HMRC and make a payment on account of CGT within 60 days of completion. This obligation applies to most inherited property sales (unless the property was your main home and is fully covered by PRR).

You report through the HMRC Capital Gains Tax on UK property online service, which is separate from your annual Self Assessment tax return. You will need:

• Your Government Gateway account details
• The completion date and sale price
• Your base cost (probate value) and allowable deductions
• Details of any reliefs you are claiming

You must still report the gain on your Self Assessment tax return for the year, but the 60-day payment is treated as a payment on account. Late reporting attracts penalties starting at £100 (for up to six months late), with further penalties for continued delay. Late payment incurs interest at HMRC's prevailing rate.

Multiple beneficiaries and shared inheritance

When two or more people inherit a property — whether as joint tenants or tenants in common — each beneficiary is treated independently for CGT purposes. This has several practical implications:

• Each person's share of the gain is calculated based on their proportionate share of the property. If two siblings inherit equally, each reports half the gain.
• Each person has their own annual exempt amount (£3,000 for 2025/26). Two beneficiaries therefore have a combined allowance of £6,000 between them.
• Each person pays CGT at the rate determined by their own income tax band. If one sibling is a basic rate taxpayer and the other is a higher rate taxpayer, they pay different rates on their respective shares of the gain.
• Each person must report and pay independently through the 60-day reporting process.

This means that inheriting jointly can sometimes result in a lower overall CGT bill compared with a single person inheriting the full property, because the gain is spread across multiple annual exempt amounts and potentially multiple basic rate bands. For a broader look at the process of selling jointly inherited property, see our guide on selling a house you inherited.

Timing considerations

When you sell an inherited property can affect how much CGT you pay. There are several timing factors worth considering:

• Tax year of sale. If you expect your income to be lower in one tax year than another (for example, if you are retiring or taking a career break), selling in the lower-income year may allow more of the gain to be taxed at 18% rather than 24%.
• Using the annual exempt amount. Since the annual exempt amount cannot be carried forward, selling in a tax year when you have no other capital gains maximises the benefit of the £3,000 allowance.
• Property market movements. If the property has appreciated significantly since the date of death, you may face a substantial gain. If you expect further appreciation, the gain will only grow — but this must be weighed against market risk and holding costs.
• Selling quickly after inheritance. If you sell shortly after the date of death, the sale price is likely to be close to the probate value, resulting in a minimal or zero gain. However, you should not rush a sale purely for CGT reasons if it means accepting a lower price.

What if the property has fallen in value?

If you sell the property for less than the probate value, you make a capital loss rather than a capital gain. This loss can be set against other capital gains you make in the same tax year, or carried forward to offset gains in future years.

If the property has fallen significantly in value between the date of death and the date you sell, it may also be worth checking whether the probate valuation can be revised. Under section 191 of the Inheritance Tax Act 1984, personal representatives can claim a relief where property sold within four years of death realises less than the probate value, potentially reducing the IHT paid on the estate.

Practical steps before you sell

1. Locate the probate valuation. This is your base cost and the starting point for your CGT calculation. If a professional valuation was not obtained at the date of death, consider commissioning a retrospective valuation from a RICS surveyor.
2. Gather improvement receipts. Collect invoices and receipts for any capital improvements made since you inherited the property. Only capital expenditure that enhanced the property's value is deductible — not routine maintenance.
3. Check your income tax position. Your CGT rate depends on your total taxable income for the year, so understanding where you sit relative to the basic rate band is important for estimating your liability.
4. Consider reliefs. If you lived in the property at any point, you may qualify for Private Residence Relief. If you shared occupation with a tenant, letting relief may apply.
5. Take professional advice. CGT on inherited property can be complex, particularly where multiple beneficiaries, trusts, or mixed-use properties are involved. A qualified accountant or tax adviser can help you structure the sale to minimise your liability within the rules.
6. Prepare for the 60-day deadline. Have your figures ready before completion so you can report and pay within 60 days. Your solicitor or accountant can help you file through the HMRC online service.

Sources

• HM Revenue & Customs — Capital Gains Tax: what you pay it on, rates and allowances (GOV.UK)
• HM Revenue & Customs — Report and pay Capital Gains Tax on UK property (GOV.UK)
• Taxation of Chargeable Gains Act 1992, section 62 — legislation.gov.uk
• Inheritance Tax Act 1984, section 191 — legislation.gov.uk
• HMRC Inheritance Tax Manual, IHTM09701: Market value — hmrc.gov.uk
• HMRC Capital Gains Manual, CG70250: Private Residence Relief — hmrc.gov.uk
• HMRC Capital Gains Manual, CG73400 onwards: Letting relief — hmrc.gov.uk
• Finance Act 2024 — legislation.gov.uk (residential property CGT rate changes)

Related guides

• Selling a UK Property While Living Abroad
• Selling a Second Home in the UK

Frequently asked questions