You don’t pay Capital Gains Tax when you inherit property in the UK, but you will owe CGT if you later sell that inherited property for more than its probate value, with tax rates of 18% for basic rate taxpayers and 24% for higher rate taxpayers on residential property gains above the £3,000 annual allowance.
The CGT landscape for inherited property has become more stringent in recent years, with the annual allowance dropping from £12,300 to just £3,000 for the 2025/26 tax year. Current government data shows that CGT rates on residential property stand at 18% for basic rate taxpayers and 24% for higher or additional rate taxpayers, whilst the reporting deadline requires you to notify HMRC within 60 days of completion.
Recent analysis reveals that inherited properties typically achieve probate values that serve as the baseline for CGT calculations, meaning any profit above this probate value becomes subject to tax when the property is eventually sold.
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Do you pay capital gains tax on inherited property?
Capital Gains Tax applies to the profit you make when selling or disposing of an asset that has increased in value, but the inheritance itself doesn’t trigger any immediate CGT liability. When someone dies, their property gets valued during probate, and this “probate value” becomes your baseline for any future CGT calculations rather than what the deceased originally paid for the property.
This system works in your favour because it means you inherit the property at its current market value, effectively wiping out any capital gains that built up during the deceased person’s ownership. For example, if someone bought a house for £100,000 in 1990 but it’s worth £300,000 when they die, you inherit it at the £300,000 probate value, not the original £100,000 purchase price.
When Do You Pay CGT on Inherited Property?
CGT becomes payable only when you sell the inherited property for more than its probate value. If you inherit a property valued at £250,000 during probate and later sell it for £280,000, you’ll owe CGT on the £30,000 gain, not the entire sale price.
The tax applies regardless of how long you hold the property before selling, though certain reliefs might apply if you live in the property as your main residence. Properties sold for less than their probate value don’t attract CGT, and in fact, these losses can be offset against other capital gains you might have in the same tax year.
How to Calculate CGT on Your Inherited Property Sale?
Calculating CGT involves several steps that determine your exact liability. Start by identifying the probate value, which represents your baseline cost for CGT purposes. Then subtract this figure from your actual sale price to determine your gross gain.
From this gross gain, you can deduct allowable expenses including estate agent fees, solicitor costs, surveyor fees, and any improvement costs you’ve incurred since inheriting the property. Basic maintenance costs like repainting or minor repairs don’t qualify as deductible expenses, but substantial improvements like extensions or new kitchens do.
After deducting allowable expenses, subtract the annual CGT allowance of £3,000 to arrive at your taxable gain. This allowance can’t be carried forward, so timing your sale strategically across tax years could help you utilise multiple years’ allowances.
Current CGT Rates and Income Tax Thresholds for 2025/26
Your CGT rate depends on your total taxable income for the year, including both your regular income and any capital gains. Basic rate taxpayers with total taxable income up to £37,700 pay 18% CGT on residential property, whilst those above this threshold pay 24%.
The calculation works by adding your capital gains to your existing taxable income. If this combined total pushes you into the higher rate band, you’ll pay 18% on the portion within the basic rate and 24% on the remainder. For instance, if your taxable income is £35,000 and you have £10,000 in taxable gains, you’d pay 18% on £2,700 and 24% on £7,300.
| Scenario | Probate Value | Sale Price | Gross Gain | After Allowances | CGT at 18% | CGT at 24% | Total CGT |
|---|---|---|---|---|---|---|---|
| Basic Rate Sale | £200,000 | £230,000 | £30,000 | £27,000 | £4,860 | £0 | £4,860 |
| Higher Rate Sale | £200,000 | £280,000 | £80,000 | £77,000 | £0 | £18,480 | £18,480 |
| Mixed Rate Sale | £200,000 | £250,000 | £50,000 | £47,000 | £486 | £10,843 | £11,329 |
This table demonstrates how different gain amounts and tax rates affect your final CGT liability, helping you understand the financial implications of selling inherited property at various price points.
What Exemptions and Reliefs Reduce CGT on Inherited Property?
Principal Private Residence Relief represents the most valuable exemption available for inherited property. If you move into the inherited property and make it your main residence, you can claim relief for the entire period you live there plus the final nine months of ownership, regardless of whether you actually occupy it during those last nine months.
The relief applies proportionally, so if you live in an inherited property for two years out of four years of ownership, you’d get relief on 50% of any gain plus the final nine months. This can substantially reduce or eliminate CGT liability for beneficiaries who choose to live in inherited properties before selling.
Spouse and civil partner transfers remain completely exempt from CGT, allowing married couples or civil partners to transfer inherited property between themselves without any tax consequences. This flexibility enables couples to optimise their CGT positions by transferring property to the partner with lower income or unused allowances.
Reddit Community Insights: Learning from Real Inheritance Experiences
Property Saviour’s analysis of inheritance discussions reveals consistent themes about CGT confusion and unexpected costs that families often overlook. Many users discovered that the probate value becomes their CGT baseline, not the original purchase price, which often comes as a pleasant surprise since it reduces potential tax liability significantly.
However, several Reddit contributors warn about the complexity of calculating CGT when properties are held in trust, particularly where different beneficiaries have varying entitlements. One user shared how their family’s property trust resulted in each sibling facing different CGT calculations based on their percentage ownership, creating administrative complexity that required professional advice to resolve properly.
Another common theme involves families discovering that improvements made to inherited properties before sale can be offset against CGT, but routine maintenance cannot. Understanding this distinction proves valuable for beneficiaries planning renovation work before marketing their inherited properties.
Do You Pay CGT If You Live in the Inherited Property?
Living in an inherited property as your main residence can significantly reduce or eliminate CGT liability through Principal Private Residence Relief. The relief applies from the date you move in until you sell, plus an automatic final nine months regardless of whether you’re actually living there during that period.
The relief works proportionally based on the time you occupy the property as your main residence compared to your total ownership period. If you inherit a property in January, move in during June, and sell two years later, you’d get relief for approximately 75% of the ownership period plus the final nine months.
Planning your occupancy strategically can substantially reduce CGT liability, particularly for higher-value properties where tax savings could reach thousands of pounds. However, you can only have one main residence at a time for CGT purposes, so moving into an inherited property might affect reliefs on your existing home.
When Does the Probate Process Affect CGT Calculations?
Properties sold during the probate process before being transferred to beneficiaries face different CGT rules, with the estate itself potentially liable for tax rather than individual beneficiaries. Estates benefit from CGT annual exemptions in the year of death and the following two tax years, which can help reduce overall tax liability.
Personal representatives managing estate sales must consider whether to sell properties immediately or transfer them to beneficiaries first. Immediate sales might benefit from estate CGT exemptions, whilst transfers followed by beneficiary sales allow individual exemptions and reliefs to apply.
The timing decision often depends on property values, beneficiary circumstances, and available exemptions. Professional advice proves valuable for estates with substantial property assets where CGT planning could save significant amounts.
How Long Do You Have to Report CGT on Inherited Property Sale?
You must report CGT on inherited property sales to HMRC within 60 days of completion, not exchange of contracts. This tight deadline requires advance planning to ensure you have all necessary documentation and calculations ready before the sale completes.
The reporting requirement applies regardless of whether you owe any tax, meaning even sales that result in no CGT liability due to exemptions or reliefs must still be reported within the 60-day window. Late reporting attracts automatic £100 penalties, with additional charges for extended delays.
Payment deadlines depend on your reporting method. Online reporting through HMRC’s digital service requires immediate payment, whilst those filing through Self Assessment can defer payment until the usual Self Assessment deadline of 31st January following the tax year.
What Happens If Multiple People Inherit the Same Property?
When several beneficiaries inherit shares in the same property, each person’s CGT calculation depends on their individual share of the gain and their personal tax circumstances. The probate value gets divided according to ownership percentages, and each beneficiary calculates their CGT liability separately when the property sells.
Joint ownership can create opportunities for tax planning, particularly if beneficiaries have different income levels or unused CGT allowances. Transferring shares between family members before sale might help optimise overall tax liability, though professional advice is essential to ensure such transfers comply with HMRC rules.
Disagreements between beneficiaries about sale timing or pricing can complicate CGT planning, particularly if some beneficiaries want immediate sale whilst others prefer to wait. These situations often benefit from professional mediation or direct sale to companies that can handle complex family dynamics sensitively.
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