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Do I Pay Capital Gains Tax When I Sell an Inherited Property?

Property Saviour » Tax » Do I Pay Capital Gains Tax When I Sell an Inherited Property?

Whether you will pay tax when selling an inherited property depends on your individual circumstances.  This article is produced for educational purposes only and you must consult a professional tax advisor. 

Inheritance brings about mixed emotions of a financial blessing and the stressful experience of dealing with the affairs of an estate.

Whether you are an Executor or a beneficiary, this is probably the first time you will be looking to sell inherited property.  Naturally, you will have several questions, such as “If I sell an inherited property, is it taxable?” and “If I want to sell my house and live in my inherited one, how much tax will I have to pay?”

In this article, we will cover Inheritance Tax, Income Tax, and Capital Gains Tax with a view to answering the following questions:

When a loved one has passed away, the legal term used for them is a deceased. Everything a person owned when they died are called their estate and this includes savings, property, car or any other items.  If any terms are unfamiliar you can refer to our Wills and Probate Jargons Explained.

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I want to sell my house and live in my inherited one

You are probably considering this scenario to reduce your inheritance tax liability.  If you have inherited a property valued up to £325,000, then there is no Inheritance Tax to pay.  You could sell the inherited house and pay off your mortgage on your main house.

Let’s say that you have inherited a property worth £1 million.  In this case, your inheritance allowance will cover you up to £325,000; on the remaining amount, there will be inheritance tax to be paid.  As always, check with your professional tax advisor as to the exact amount payable, as inheritance tax rules are complex and vary depending on your situation.

Do I pay capital gains tax when I sell an inherited property?

Capital gains tax is calculated based on the increase in value from the date of death to resale.

Beneficiaries receive assets at their probate value, meaning they will be subject to Capital Gains Tax when selling or giving away the asset. This tax applies to the increase in value from the time of the owner’s death to the time of the sale or gift.

How long do I have to live in an inherited house to avoid CGT?

To avoid Capital Gain Tax (CGT) on your residential property, you need to be a resident of the property for the entire period of ownership. This is known as Private Residence Relief (PRR).

PRR exempts you from CGT if you live in the property as your primary and only residence. To make the property your permanent residence, you must reside in it for at least one year.

selling inherited property
You may wish to buy out your siblings' share if they want to sell.

How much does your house have to be worth before you pay inheritance tax

Inheritance tax is a tax that is applied to estates worth over £325,000 after a person passes away. This tax rate is set at 40%.

It is important to note that the value of the estate may include possessions or the proceeds from the sale of a home.

How much Income Tax will I have to pay on inherited property?

If you decide to rent your inherited property, you will have to pay income tax.  The exact amount depends on your circumstances, so please check with your accountant.

Let’s say that you rent your inherited property over ten years, and it has risen considerably, then you will also have capital gains tax to pay.

Becoming a landlord is not for everyone due to extensive legislation.   Read our guide on pros and cons of renting your inherited property or selling it.

What can I offset against capital gains tax?

Are you aware of the allowable deductions for Capital Gains Tax on property in the UK?

Calculating your final Capital Gains Tax bill involves taking into account allowable deductions such as Private Residence Relief, costs of buying and selling the property, and eligible improvement costs. However, property maintenance costs and mortgage interest cannot be deducted.

To reduce your Capital Gains Tax bill, it is important to keep a record of costs and deduct them, offset losses from other assets, make use of the spousal £24,600 allowance, consider your spouse’s income if it falls under a lower tax rate, and sell at the right time.

If you have held an inherited property for a considerable time and it has risen in value, then you will have to pay Capital Gains Tax.  You will only have to pay tax on gains or profits achieved.

You can deduct expenses such as any improvements made to the property. These legitimate costs can include:

You will need receipts for work carried out and any before and after photographs. 

If your inherited property became your main residence for a period of time in the past six years, then you could be entitled to “private residence relief”.  Therefore, you may not have to pay full Capital Gains Tax on the portion of profits that covered this period plus an extra nine months.

Whether you have inherited a house from your parents or you are selling a gifted property, Capital Gains Tax inheritance rules are complex. It is always worth speaking to HMRC or your accountant.

These are allowable expenses that you can offset against your capital gains tax bill according to HMRC:

If you have inherited a property, and it means you have two homes, then you must tell HMRC within 2 years as to which is your main home.  If you do not inform HMRC and sell a property, they will decide which is your main home.

As of January 2023, new rules mean that you must pay any Capital Gains Tax to HMRC within 30 days for any residential property once it is sold.

Do I pay capital gains tax on inherited property
Keep an eye on Spring statement, as it is rumoured that Capital Gains Tax will be scrapped.

How do I sell inherited property and move on?

After the death of a loved one, selling an inherited property can be a very traumatic experience.  An Executor to a probate estate will have several priorities.  These include:

Once you have applied for a Grant of Probate, the process of selling your property can commence. You can either apply for a Grant of Probate or instruct a solicitor to do it for you.  Provided there are no inheritance tax issues, a Grant of Probate can be issued within two months.  Currently, timescales for Grant of Probate applications can be as much as 3 months.

It is likely that your probate property requires a refurbishment.  This may well put off any potential buyers requiring a mortgage.

One option is to sell your property fast to a cash buyer like us.  We can buy your inherited property quickly.  We don’t require a mortgage to buy it!

Can a professional Executor reduce your inheritance amount?

If your Executor is family or friend, then they would not charge to conclude the affairs of the deceased’s estate.  This is the ideal scenario.

If they are a solicitor, paid on an hourly basis, you need to pay close attention.

We know that selling your house through probate is the standard process.  The majority of professional Executors are caring and ethical; however, a minority of professionals are in it for the money.

Your solicitor or accountant may not be in a rush to settle the probate.  This will affect your ability to sell your inherited property quickly. 

This is because professional Executors are paid for their time.  If they are acting for your loved one, you may have no idea exactly how much their fee is until the probate bill is presented to you.  This is because a probate legal bill is usually based on time spent and is not a fixed-cost bill!

We often see probate properties remain on the market for around 12-18 months.

What happens if my inherited property needs work?

Thinking of selling your property after probate has been granted?  You can put the house up on the market with an estate agent. 

It may take you longer to sell the property with an estate agent, especially if there are personal belongings in the property and it requires renovation or modernisation. We often see probate properties remain on the market for around 12-18 months.

In the interim, you are responsible for costs such as utility bills, council tax and empty property insurance. Utility firms will charge you a daily standard charge per utility. The council will charge up to 200% of the normal council tax for an empty property. This can all add up to a huge amount of money over time.  You can see these hidden costs of selling a home covered in our YouTube video.

Often, an estate agent will give you a highly inflated valuation to win your business.  In this scenario, it is very likely that a buyer will not be found for several months if you place the property on the open market.

There is no guarantee that you will be able to sell your property via an estate agent. A normal property buyer may ask you to carry out remedial works following a survey. Or worse still, a buyer may not be able to obtain a mortgage on your inherited property because it is deemed uninhabitable due to the extensive renovation required.

Even if probate has not been granted, you can agree the sale of the property and let us take care of the bills.  There is a possibility that your property may not be fully insured due to it being empty for a long time.  You will also need to consider securing your empty property to protect it from thieves, vandals and squatters.

Would you like free probate empty property insurance?

Your current insurance provider will not cover your property once it has been vacant for more than 28 days. A specific unoccupied property insurance cover is required, which can cost anywhere from a few hundred to a few thousand pounds per year, depending on the valuation and location of your property.  We would happily reimburse you the cost if you sell to us.

Probate House Clearance for free?

We can offer you a probate house clearance for free!

If we buy your property, we will offer you free house clearance.  This can save you thousands of pounds. We will donate whatever we can to the British Heart Foundation and other local charities.

selling house through probate

Why Choose Property Saviour?

We would be delighted to buy your property even if it has a missing kitchen, no central heating system, structural issues, or even a few holes in the roof!

As long as your property is in England or Wales, we are interested in buying it. We buy all types of properties for cash. Contact us today by completing our form or on 0113 320 6700 today.

We will even exchange contracts to give you peace of mind. We are genuine cash buyers who are specialists in buying probate property.

Are you looking to sell an inherited property quickly to settle the probate?

When you have applied for a Grant of Probate, we can begin the process to sell your property fast.  Why not get a free offer for your property today?

auction hammer

Property Saviour Price Promise

  • The price we’ll offer is the price that you will receive with no hidden deductions.
  • Be careful with ‘cash buyers’ who require a valuation needed for a mortgage or bridging loan.
  • These valuations or surveys result in delays and price reductions later on.
  • We are cash buyers.  There are no surveys.
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We'll Pay £1,500 Towards Your Legal Fees

  • No long exclusivity agreement to sign because we are the buyers.
  • You are welcome to use your own solicitor. 
  • If you don’t have one, we can ask our solicitors for recommendations.
  • We share our solicitor’s details and issue a Memorandum of Sale. 

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  • 100% Discretion guaranteed. 
  • If you have another buyer, you can put us in a contracts race to see who completes first.
  • Complete in 10 days or at a timescale that works for you.  You are in control.

Selling Your House Through Probate… Watch Out!

Estate agents will put your property on the market your inherited property at an unreasonable asking price. This strategy may well put off any potential buyers because the property requires refurbishment.  This could add further delays to your settlement of the estate, and all the while, the bills for solicitors, council tax, and general utilities will be adding up. 

It is a double-edged sword with both benefits and risks.  It is a blessing from a financial point of view as you will benefit from the monetary value of the property. Often, a probate property will have little or no mortgage left.  It is also likely that the property will require some substantial renovation or modernisation.  This can make selling an inherited property tricky.

One way to minimise the solicitor’s probate bill is to sell inherited property quickly to a genuine cash-buying firm like us.  We are specialists in buying probate property fast.  Plus, we will give you £1,500 towards your legal costs!

We buy probate properties for cash.  Our property-buying service is fast and hassle-free!

Sell with certainty & speed

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