Capital Gains Tax on Inherited Property: How to Reduce Your Bill

Inheriting a property can be financially significant, but so can the tax bill that follows when you sell it. Capital Gains Tax on inherited property is one of the most common — and most misunderstood — taxes that beneficiaries face. Many people assume they will pay CGT on the full difference between the original purchase price and the sale price, but that is not how it works. Your taxable gain is calculated from the probate value, and there are several legal ways to reduce the amount you owe.

This guide focuses specifically on the strategies available to reduce your CGT liability when selling an inherited property in England and Wales. For a broader overview of how CGT applies to inherited property, see our companion guide on Capital Gains Tax on inherited property. If you are still in the early stages of dealing with the estate, our guide on selling a house after bereavement covers the practical and emotional steps involved.

How CGT is calculated on inherited property

When someone dies, their property is revalued at the date of death for Inheritance Tax purposes. This figure — the probate value — becomes your base cost for Capital Gains Tax if you later sell the property. Under section 62 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992), the person who inherits is treated as having acquired the asset at its market value at the date of death.

The basic formula is:

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

This means you are not taxed on any increase in value during the deceased's lifetime. Only the increase between the probate value and your eventual sale price is subject to CGT. If the property has not risen in value since the date of death — or has fallen — there may be no CGT to pay at all.

For the 2025-26 tax year, residential property CGT rates are 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers. Your rate is determined by adding the taxable gain to your other income for the year. For a full breakdown of how CGT rates work on property, see our guide on Capital Gains Tax when selling a second home.

Why the probate value is the key to reducing your CGT

The probate value is the single most important number in your CGT calculation. A higher probate value means a smaller gain when you sell, and therefore less CGT. A lower probate value means a larger gain and a bigger tax bill.

The probate value must be an honest reflection of the property's open market value at the date of death. HMRC can — and does — challenge probate valuations that appear unreasonably high or low. However, ensuring the probate valuation is accurate rather than conservative can make a real difference to your future CGT liability. Steps to take include:

• Obtain a professional valuation. A RICS (Red Book) valuation at the date of death is the gold standard. If one was not obtained at the time, a retrospective valuation from a RICS surveyor may still be possible and can be used to support the probate figure.
• Get multiple estate agent opinions. At least two or three independent market appraisals at the date of death give you a defensible range. The probate value should reflect the midpoint of realistic estimates, not the lowest possible figure.
• Account for the property's condition. If the property was in poor condition at the date of death — perhaps because the deceased was elderly or unwell and maintenance had lapsed — the probate valuation should reflect that. A property needing significant work is worth less than one in good order.

There is a tension between the Inheritance Tax position (where a lower probate value reduces IHT) and the CGT position (where a higher probate value reduces future CGT). The right approach is always to use an accurate, defensible figure. HMRC's Shares and Assets Valuation team reviews probate valuations and has access to property transaction data, so the figure must stand up to scrutiny.

Allowable deductions that reduce your taxable gain

After establishing your base cost (the probate value), you can further reduce your taxable gain by deducting certain costs. Keeping thorough records and receipts is essential — HMRC can ask for evidence to support every deduction you claim.

Costs you can deduct

• Capital improvement costs. Any expenditure that enhanced the value of the property, such as building an extension, installing a new kitchen or bathroom, adding central heating, replacing the roof with a higher specification, or converting a loft. The improvement must add value to the property — not simply restore it to its previous condition.
• Solicitor and conveyancing fees. Legal costs incurred when selling the property are allowable deductions. See our guide on solicitor fees for selling a house for typical amounts.
• Estate agent fees. The commission and VAT you pay to your estate agent on the sale.
• Probate valuation costs. If you paid for a professional valuation at the date of death, this cost is deductible.
• Costs of establishing title. Legal costs incurred during the probate process to confirm your ownership of the property.

Costs you cannot deduct

• Routine repairs and maintenance. Repainting, fixing a boiler, replacing broken windows with like-for-like items, or general upkeep costs are not deductible. HMRC draws a clear line between repairs (not allowable) and improvements (allowable).
• Mortgage interest. Payments relating to financing the property cannot be deducted from the gain.
• Insurance, council tax, and utility bills. Running costs of maintaining the property while you own it are not allowable.
• Inheritance Tax paid. IHT is a separate tax on the estate and cannot be offset against CGT.

For a broader view of all the costs involved in a property sale — many of which are also allowable CGT deductions — see our guide to the hidden costs of selling a house.

Using the annual exempt amount

Every individual in the UK has an annual Capital Gains Tax exemption — the Annual Exempt Amount — which for the 2025-26 tax year is £3,000 per person. This is deducted from your total taxable gains for the year before CGT is calculated.

Key points for inherited property sellers:

• The allowance applies to your total gains in the tax year. If you also sell shares or other assets, all gains share the same £3,000 allowance.
• It cannot be carried forward. If you do not use it in a given tax year, it is lost.
• If multiple beneficiaries inherit and sell jointly, each person has their own £3,000 allowance against their share of the gain. Two siblings selling equally can shelter £6,000 between them.
• Timing the sale to fall in a tax year when you have no other capital gains maximises the benefit of the allowance.

Private Residence Relief on inherited property

Private Residence Relief (PRR) is the most powerful CGT relief available. It exempts from CGT any gain attributable to periods during which the property was your only or main home. Under section 222 of the TCGA 1992, a property qualifies for PRR if you occupied it as your only or main residence.

For inherited property, PRR can apply in the following ways:

• Full PRR. If you inherited the property, moved in as your only or main home, and lived there continuously until you sold, the entire gain is exempt from CGT.
• Partial PRR. If you lived in the property for part of the time you owned it, the gain is apportioned on a time basis. The portion attributable to your period of residence (plus the final nine months) is exempt, and the remainder is taxable.
• The final nine months. If you lived in the inherited property as your main home at any point, the final nine months of ownership are automatically exempt — even if you had moved out by then. This was reduced from 18 months in April 2020.
• Nomination election. If you own two properties (for example, your existing home and the inherited one) and live in both at different times, you can nominate which property should be treated as your main residence for CGT purposes. The election must be made within two years of acquiring the second property by writing to HMRC.

PRR only applies to your period of occupation. The fact that the deceased person lived in the property as their home does not entitle you to PRR. The relief is based entirely on your own use of the property after you inherited it.

Worked example: reducing CGT on inherited property

The following example illustrates how various deductions and reliefs can reduce the CGT bill on an inherited property. In this scenario, two siblings inherit a property equally. One sibling is a basic rate taxpayer and the other is a higher rate taxpayer.

Each sibling's share of the gain is £26,489. After deducting their individual £3,000 annual exempt amount, each has a taxable gain of £23,489.

Without any allowable deductions, the gain would have been £70,000, resulting in a significantly higher tax bill. The deductions alone saved over £4,000 in CGT in this example. For guidance on navigating a joint inherited property sale, see our guide on selling an inherited house with siblings.

Timing strategies to reduce your CGT bill

When you sell an inherited property can have a meaningful impact on how much CGT you pay. Here are the main timing considerations:

1. Sell promptly after inheritance. The sooner you sell after the date of death, the less time the property has to appreciate above the probate value. If you sell within a few months, the gain is likely to be minimal or zero. However, do not accept a below-market price simply to avoid CGT — you need to weigh the tax saving against the potential loss on the sale price.
2. Sell in a low-income year. Your CGT rate depends on your total taxable income. If you are retiring, taking a career break, or expecting lower income in a particular tax year, selling in that year may allow more of the gain to be taxed at 18% rather than 24%.
3. Avoid wasting the annual exempt amount. Since the £3,000 annual exempt amount cannot be carried forward, sell in a year when you have no other capital gains to ensure you get the full benefit.
4. Consider pension contributions. Making pension contributions in the same tax year as the sale can extend your basic rate band, potentially keeping more of the gain within the 18% rate rather than the 24% rate.
5. Spread sales across tax years. If you have inherited multiple assets, selling them in different tax years allows you to use multiple years' worth of annual exempt amounts.

Joint ownership and spousal transfers

If you are married or in a civil partnership, there are additional strategies that can reduce your combined CGT bill:

• Transfers between spouses are CGT-free. Under section 58 of the TCGA 1992, transfers of assets between spouses or civil partners who are living together take place at no gain and no loss. This means you can transfer a share of the inherited property to your spouse without triggering CGT.
• Both annual exempt amounts. Once the property is jointly owned, each spouse has their own £3,000 annual exempt amount to apply against their share of the gain.
• Both income tax bands. Each spouse's share of the gain is added to their own income to determine the CGT rate. If one spouse is a basic rate taxpayer, their share may be taxed at 18% rather than 24%.

This strategy is most effective when one spouse has unused basic rate band capacity and the other is already in the higher rate band. The transfer must take place before the property is sold to be effective for CGT purposes. Professional advice from a qualified tax adviser is strongly recommended before making any spousal transfer.

Executor obligations and the estate CGT position

If you are acting as an executor of the estate, you should be aware that the timing of the sale relative to the distribution of the estate affects who pays CGT and at what rate.

• Sale during estate administration. If the executors sell the property before distributing it to the beneficiaries, any gain is assessed on the personal representatives. The estate has its own annual exempt amount (£3,000) for the tax year of death and the following two tax years only. After that, the estate has no annual exempt amount. The CGT rate for personal representatives is a flat 24% on residential property.
• Transfer then sale. If the property is transferred to the beneficiaries first (known as an assent), each beneficiary can then sell their share and use their own annual exempt amount and their own income tax band. This can result in a lower overall CGT bill, particularly where beneficiaries are basic rate taxpayers.
• Practical considerations. Transferring the property to the beneficiaries before sale adds a step to the process and may involve additional legal costs. However, where the potential tax saving is significant, it is usually worth the extra administrative effort.

Offsetting capital losses

If you have made capital losses on other assets — such as shares, investments, or another property — you can offset those losses against your gain on the inherited property. This reduces your taxable gain and therefore your CGT bill.

• Same tax year. Losses made in the same tax year as the property sale are automatically deducted from your gains before the annual exempt amount is applied.
• Brought-forward losses. Losses from previous tax years that were reported to HMRC can be carried forward and set against the current year's gains. Unlike same-year losses, brought-forward losses are only used to reduce your gains down to the annual exempt amount — they are not wasted if your gains are already below the threshold.
• Reporting losses. To carry forward a loss, you must report it to HMRC on your Self Assessment tax return within four years of the end of the tax year in which the loss occurred.

Reporting and paying CGT within 60 days

When you sell a residential property that is not your main home, you must report the disposal and pay any CGT due within 60 days of the completion date. This applies to inherited property sales where a gain arises. The report is filed through HMRC's 'Report and pay Capital Gains Tax on UK property' service.

What you need to include

• The completion date and sale price
• The probate value (your base cost) and the date of death
• Details of all allowable deductions with supporting evidence
• Any reliefs you are claiming (PRR, annual exempt amount, losses)
• Your estimate of total income for the tax year (to determine your CGT rate)

Penalties for late reporting

If you miss the 60-day deadline, HMRC may charge a £100 late filing penalty. Returns more than six months late attract additional penalties. Interest is charged on any unpaid CGT from the due date. Even if you file a Self Assessment return, the 60-day property report is a separate obligation and missing it will incur penalties regardless.

You must still include the gain on your annual Self Assessment return for the year of sale. Any CGT already paid through the 60-day return is credited against your Self Assessment liability.

Summary: a checklist for reducing CGT on inherited property

1. Ensure the probate valuation is accurate and professionally supported — do not accept a conservative estimate
2. Gather receipts and invoices for all capital improvements made since inheritance
3. Claim every allowable deduction: solicitor fees, estate agent fees, valuation costs, and improvement costs
4. Use your full £3,000 annual exempt amount — and your spouse's if the property is jointly held
5. Consider transferring a share to your spouse before selling to use both exemptions and tax bands
6. Move into the property as your main home if practical — Private Residence Relief can eliminate CGT entirely
7. Time the sale for a year when your income is lower to benefit from the 18% basic rate
8. Offset any available capital losses from other disposals
9. Where you are an executor, consider whether transferring the property to beneficiaries before sale would reduce the overall CGT bill
10. Report and pay within 60 days of completion to avoid penalties

Sources

• Capital Gains Tax — Overview (GOV.UK)
• Capital Gains Tax Rates (GOV.UK)
• Capital Gains Tax Allowances (GOV.UK)
• Report and Pay Capital Gains Tax on UK Property (GOV.UK)
• Tax When You Sell Your Home (GOV.UK)
• TCGA 1992, Section 62 — Death: General Provisions (legislation.gov.uk)
• TCGA 1992, Section 222 — Relief on Disposal of Private Residence (legislation.gov.uk)
• TCGA 1992, Section 58 — Husband and Wife / Civil Partners (legislation.gov.uk)
• HMRC Capital Gains Manual, CG70250: Private Residence Relief (hmrc.gov.uk)
• HMRC Inheritance Tax Manual, IHTM09701: Market Value (hmrc.gov.uk)

Related guides

• Executor Tax Obligations When Selling Property: UK Guide

Frequently asked questions