How To Avoid Capital Gains Tax On Inherited Property
- Adil Akhtar
- 2 days ago
- 23 min read
Updated: 2 days ago
Index
The Audio Summary of the Key Points of the Article:
Understanding Capital Gains Tax on Inherited Property in the UK
So, you’ve just inherited a property—congratulations, but also, condolences. It’s a bittersweet moment, and one of the last things you want to think about is tax. Yet, here we are: if you’re planning to sell that inherited house or flat, Capital Gains Tax (CGT) might come knocking. Let’s dive into what CGT is, when it applies to inherited property, and how you can start thinking about keeping more of your inheritance in your pocket.
What Exactly Is Capital Gains Tax?
Let’s kick things off with the basics. Capital Gains Tax is a tax you pay on the profit—or “gain”—you make when you sell an asset that’s gone up in value. For inherited property, this means if you sell the house or flat for more than it was worth when you inherited it, you might owe CGT on the difference. The good news? You don’t pay CGT just for inheriting the property—HMRC doesn’t tax you at that point. The tax only kicks in when you “dispose” of it, which usually means selling it, gifting it, or transferring it in a way that’s considered a disposal under tax rules.
For the 2025/26 tax year, every UK taxpayer gets an Annual Exempt Amount of £3,000. This means you can make up to £3,000 in capital gains across all your assets before CGT applies. If you’re married or in a civil partnership, you and your spouse can combine your allowances, giving you a total of £6,000 tax-free. But here’s the catch: any gain above this allowance is taxed, and for residential property, the rates are 18% for basic-rate taxpayers (those earning up to £50,270) and 24% for higher or additional-rate taxpayers (earning over £50,270). These rates were aligned in the 2024 Autumn Budget, so they apply consistently across the UK, whether you’re in London, Cardiff, or Edinburgh.
Why Inherited Property Is Different
Now, here’s where inherited property gets its own special treatment. Unlike a property you buy, the “base cost” for CGT purposes isn’t what the previous owner paid for it. Instead, it’s the probate value—the market value of the property at the time the original owner passed away. This is a big deal because it resets the clock on any gains made before you inherited it. For example, if your gran bought a house in 1970 for £10,000 and it was worth £300,000 when she passed in 2024, you’re only taxed on any increase above £300,000 when you sell. This rule stops you from being taxed on decades of appreciation you didn’t benefit from.
The 2025/26 Tax Year: Key Numbers You Need to Know
Let’s get practical with some numbers. Knowing the tax bands and allowances for 2025/26 is crucial for planning. Here’s a quick table to break it down:
Tax Band | Income Range | CGT Rate on Residential Property |
Basic Rate | Up to £50,270 | 18% |
Higher Rate | £50,271–£125,140 | 24% |
Additional Rate | Over £125,140 | 24% |
Annual Exempt Amount | £3,000 (individuals) | Tax-free |
Annual Exempt Amount (Trusts) | £1,500 | Tax-free |
Source: HMRC, verified as of April 2025
2025/26 Tax Year Key Numbers
If your total taxable income (including the gain) pushes you into a higher tax band, you’ll pay 18% on the portion within the basic-rate band and 24% on the rest. For example, if you earn £40,000 a year and make a £20,000 gain, £10,270 of that gain fits within the basic-rate band (£50,270 - £40,000), taxed at 18%, while the remaining £9,730 is taxed at 24%. You can use HMRC’s online calculator to crunch these numbers: www.tax.service.gov.uk/calculate-your-capital-gains/resident/properties/.
When Do You Need to Pay CGT?
Here’s a key point: you only pay CGT if you sell or dispose of the property and make a gain above your £3,000 allowance. But there’s a deadline to watch out for. Since April 2020, if you sell a residential property (that’s not your main home), you must report the gain and pay any CGT due within 60 days of the sale completion. Miss this, and you’re looking at penalties starting at £100, plus interest on late payments. You’ll also need to include the gain in your Self-Assessment tax return by 31 January 2026 for the 2024/25 tax year, even if you’ve already paid the tax.
Real-Life Scenario: Meet Elowen
Let’s make this real with a hypothetical case. Elowen, a teacher from Cornwall, inherits her uncle’s flat in Plymouth, valued at £250,000 during probate in March 2024. She decides to sell it in July 2025 for £280,000. Her gain is £280,000 - £250,000 = £30,000. After deducting her £3,000 annual allowance, her taxable gain is £27,000. Elowen earns £35,000 a year, so her basic-rate band has £15,270 left (£50,270 - £35,000). She pays 18% on £15,270 (£2,748.60) and 24% on the remaining £11,730 (£2,815.20), totalling £5,563.80 in CGT. She must report this to HMRC by September 2025 and pay by 31 January 2026 via Self-Assessment. This scenario shows how quickly CGT can add up, but don’t worry—there are ways to reduce or avoid it, which we’ll explore next.
Common Costs You Can Deduct
Before you start panicking about your tax bill, know that you can reduce your taxable gain by deducting certain costs. These include:
Acquisition costs: Legal fees or valuation fees paid during probate.
Disposal costs: Estate agent fees, conveyancing fees, or advertising costs.
Improvement costs: Money spent on significant upgrades, like adding an extension, but not routine maintenance like repainting.
For example, if Elowen spent £5,000 on legal fees and £10,000 on a new kitchen before selling, her gain drops to £15,000 (£30,000 - £15,000). After her £3,000 allowance, her taxable gain is £12,000, significantly lowering her CGT bill. Keep receipts for these costs—HMRC loves paperwork.
Why Timing Matters
Now, consider this: timing your sale can make a big difference. If you’re close to the end of the tax year (5 April), you might want to delay the sale to the next tax year to use a fresh £3,000 allowance. For instance, if Elowen sold half the flat in March 2025 and the other half in April 2025, she could use two years’ allowances (£6,000 total), slashing her taxable gain further. This strategy requires careful planning, as splitting sales can be complex and may need legal advice.
Practical Strategies to Minimise or Avoid CGT on Inherited Property
Right, so you’ve got a handle on what Capital Gains Tax (CGT) is and how it applies to inherited property. Now, let’s get into the nitty-gritty of how you can keep more of your inheritance by legally reducing—or even avoiding—CGT. This part is all about actionable strategies, tailored for UK taxpayers and business owners, with a focus on practical steps you can take. We’ll cover everything from using reliefs to clever timing, backed by real-world examples and the latest rules for the 2025/26 tax year.
Make Your Inherited Property Your Main Home
Let’s start with one of the most powerful ways to dodge CGT: Private Residence Relief (PRR). If the inherited property becomes your main home—known as your “principal private residence”—you can potentially sell it later without paying any CGT on the gain. Here’s how it works: if you live in the property as your primary residence, any gain made when you sell it is exempt from CGT. But there’s a catch—you need to genuinely live there, not just pop in for a weekend.
Now, imagine you’re Idris, a graphic designer from Swansea. You inherit your aunt’s cottage in Carmarthenshire, valued at £200,000 in 2024. Instead of selling it straight away, you move in for two years, making it your main home. When you sell it in 2026 for £240,000, the entire £40,000 gain is covered by PRR, so you owe no CGT. But be warned: HMRC is strict about what counts as your main residence. You’ll need evidence like utility bills, council tax records, or your voter registration to prove you lived there. If you own another home, you must tell HMRC which one is your main residence within two years of acquiring the new property.
Use Your Spouse’s Allowance
Here’s a neat trick for married couples or civil partners: you can transfer the property (or a share of it) to your spouse to double up on your CGT allowances. Transfers between spouses are CGT-free, as long as you’re living together. Each of you gets a £3,000 Annual Exempt Amount, so together, you can shield £6,000 of gains per tax year. Plus, if one of you is a basic-rate taxpayer and the other isn’t, you can shift ownership to the lower earner to benefit from the 18% CGT rate instead of 24%.
For example, take Sian and Tomos, a couple from Cardiff. Sian inherits a flat worth £300,000 and sells it for £350,000, making a £50,000 gain. If Sian owns it alone and earns £60,000 a year, she’s a higher-rate taxpayer, so her CGT bill on £47,000 (after her £3,000 allowance) is £11,280 at 24%. But if she transfers half the flat to Tomos (who earns £30,000 and is a basic-rate taxpayer) before the sale, they split the gain. Each has a £25,000 gain, minus £3,000 allowance, so £22,000 taxable. Tomos pays 18% (£3,960), and Sian pays 24% (£5,280), totalling £9,240—a saving of £2,040. Just make sure the transfer is genuine and documented properly.
Hold Off on Selling to Spread Gains
Timing is everything, isn’t it? If your gain is likely to be large, consider delaying the sale to spread it across multiple tax years. Each year, you get a fresh £3,000 allowance, so splitting the disposal can reduce your taxable gain. This works especially well if you can sell the property in parts, like shares in a co-owned property.
Let’s say Bronwen from Bristol inherits a house worth £400,000. She plans to sell it in 2025 for £450,000, a £50,000 gain. If she sells in one go, her taxable gain (after £3,000 allowance) is £47,000, taxed at 24% (assuming she’s a higher-rate taxpayer), costing £11,280. Instead, she sells 50% in March 2025 and 50% in April 2025 (the next tax year). Each sale generates a £25,000 gain, reduced by £3,000 per year, leaving £22,000 taxable each year. That’s £5,280 per year (£10,560 total), saving her £720. This strategy needs careful legal planning, as splitting ownership can complicate things—consult a solicitor to get it right.
Deduct Every Allowable Expense
Don’t leave money on the table! You can reduce your taxable gain by deducting costs related to the property. Beyond the probate value, you can subtract:
Probate costs: Fees for valuations or legal work to inherit the property.
Improvement costs: Major upgrades, like a loft conversion or new windows, but not repairs like fixing a leaky tap.
Selling costs: Estate agent fees, conveyancing, or even advertising costs.
Here’s a table to show how these deductions can add up:
Expense Type | Example Cost | Impact on Gain |
Probate Valuation | £2,000 | Reduces gain by £2,000 |
Loft Conversion | £20,000 | Reduces gain by £20,000 |
Estate Agent Fees (2%) | £6,000 | Reduces gain by £6,000 |
Conveyancing Fees | £1,500 | Reduces gain by £1,500 |
Source: Based on typical UK costs, verified via HMRC guidelines, April 2025
For instance, if Bronwen’s £50,000 gain is reduced by £29,500 in expenses (as above), her taxable gain drops to £20,500. After her £3,000 allowance, she’s taxed on £17,500, saving thousands. Keep detailed records and receipts—HMRC may ask for proof if they audit you.
Reducing Taxable Gain on Inherited Properties
Gift the Property to a Trust
Now, here’s a strategy for business owners or those with complex estates: consider transferring the property into a trust. This can be a way to manage CGT, especially if you don’t need to sell right away. When you gift a property to a trust, it’s treated as a disposal, so you might face CGT on any gain above the probate value. However, trusts have their own £1,500 annual allowance, and you can appoint beneficiaries (like your kids) to receive the property later, potentially deferring or reducing CGT.
For example, Alun, a small business owner in Wrexham, inherits a property worth £500,000. He doesn’t want to sell but wants to protect it for his children. By transferring it to a discretionary trust, he pays CGT on any gain at the time of transfer (minus his £3,000 allowance). The trust then holds the property, and future gains are taxed at the trust’s CGT rate (24% for residential property), with its own £1,500 allowance. This can be complex, so you’ll need a tax adviser to navigate trust rules and ensure it’s worth the setup costs.
Rent It Out and Claim Letting Relief (If Eligible)
If you’ve lived in the property at some point, you might qualify for Letting Relief—but only in specific cases. This relief applies if you let out a property that was once your main home. However, since April 2020, Letting Relief has been restricted to situations where you’re still living in the property while renting out part of it (e.g., renting a room to a lodger). If you qualify, you can reduce your gain by up to £40,000 (or the amount of PRR you’re entitled to, whichever is lower).
Say Cerys from Newport inherits a house, lives in it for a year, then rents out a room while still living there. When she sells, she gets PRR for the time she lived there, plus Letting Relief for the rental period, potentially wiping out her CGT bill. This relief is rare for inherited properties, as most people don’t live in them, but it’s worth checking if your situation fits.
These strategies give you a solid toolkit to minimise CGT. Next, we’ll dive into advanced planning techniques and pitfalls to avoid, ensuring you’re fully equipped to handle your inherited property.
Advanced Planning and Pitfalls to Avoid When Managing CGT on Inherited Property
Now, you’ve got a solid grasp of the basics and some practical strategies to reduce Capital Gains Tax (CGT) on inherited property. But let’s take it up a notch. This part dives into advanced planning techniques, lesser-known reliefs, and critical mistakes to steer clear of. Whether you’re a UK taxpayer or a business owner, these insights will help you navigate the complexities of CGT with confidence, using real-world examples and the latest 2025/26 tax year rules.
Consider Business Asset Disposal Relief (If You’re a Business Owner)
Let’s talk about a lesser-known gem for business owners: Business Asset Disposal Relief (BADR). You might be thinking, “Hang on, I inherited a house, not a business!” But hear me out. If you use the inherited property in your trade—say, as a rental property in a property business or as an office for your company—you might qualify for BADR. This relief slashes the CGT rate to 10% on gains up to a lifetime limit of £1 million, instead of the usual 18% or 24% for residential property.
Here’s how it could work. Meet Gwilym, who runs a small catering business in Anglesey. He inherits a property worth £350,000 in 2024 and decides to use it as a storage facility for his business. When he sells it in 2025 for £400,000, the £50,000 gain qualifies for BADR because the property was used in his trade. After his £3,000 Annual Exempt Amount, he pays 10% on £47,000, which is £4,700—compared to £11,280 at 24% without BADR. To qualify, the property must be integral to your business, and you’ll need to meet strict HMRC criteria, so consult a tax adviser to confirm eligibility. Check HMRC’s guidance for details: www.gov.uk/business-asset-disposal-relief.
Step-by-Step Guide: Transferring to a Lower Tax Bracket
So, the question is: how can you make the most of tax bands to cut your CGT? If you’re a higher-rate taxpayer but have a family member in a lower tax bracket, transferring part of the property to them could save you thousands. This works especially well for adult children or siblings who are basic-rate taxpayers. Here’s a step-by-step guide to do it right:
Assess the Gain: Calculate the potential CGT by subtracting the probate value from the expected sale price, minus allowable costs.
Check Tax Bands: Confirm the recipient’s income tax band. If they earn under £50,270, their CGT rate is 18% instead of 24%.
Transfer Ownership: Use a solicitor to legally transfer a share of the property (e.g., 50%) to the family member. This transfer is CGT-free if it’s a gift, but you’ll need a deed of variation or similar legal document.
Sell the Property: Both owners sell their shares, splitting the gain. Each uses their £3,000 allowance, and the lower earner pays 18% on their portion.
Report to HMRC: File the CGT return within 60 days of sale completion and include the gain in your Self-Assessment by 31 January 2026.
For example, Lowri, a dentist from Aberystwyth earning £70,000, inherits a flat worth £300,000. She plans to sell it for £360,000, a £60,000 gain. If she sells alone, her taxable gain (after £3,000) is £57,000 at 24%, costing £13,680. Instead, she gifts 50% to her brother Dafydd, who earns £25,000. They sell, splitting the £60,000 gain. Lowri pays 24% on £27,000 (£6,480), and Dafydd pays 18% on £27,000 (£4,860), totalling £11,340—a £2,340 saving. Just ensure the transfer is genuine, as HMRC may challenge “sham” transfers.
Maximizing Tax Savings Through Property Transfer
Watch Out for Hold-Over Relief
Here’s something not many people talk about: Hold-Over Relief. This lets you defer CGT when you gift the property to someone else or transfer it into a trust, rather than selling it. The recipient takes on the property at your base cost (the probate value), so when they sell, they’re taxed on the full gain. This is great if you want to pass the property on without an immediate tax hit, especially if the recipient is likely to sell later when they have a lower tax liability.
Take Rhys, a retiree from Llandudno, who inherits a cottage worth £250,000. He gifts it to his daughter Elin, who plans to keep it for years. By claiming Hold-Over Relief, Rhys avoids CGT on the transfer, and Elin’s base cost is £250,000. If she sells it later for £300,000, she pays CGT on £50,000, minus her £3,000 allowance. This strategy works best when the recipient can use their allowance or lower tax rate later. Apply for relief via HMRC’s form HS295: www.gov.uk/government/publications/capital-gains-tax-hold-over-relief-hs295-self-assessment-helpsheet.
Pitfalls to Avoid: The HMRC Traps
Be careful! HMRC is eagle-eyed when it comes to CGT, and there are traps that can trip you up. Here are the big ones to watch for:
Missing the 60-Day Reporting Deadline: If you sell and don’t report the gain within 60 days, you’ll face penalties starting at £100, plus interest. Set a calendar reminder as soon as the sale completes.
Not Documenting Costs: You can’t deduct expenses without proof. Keep receipts for every penny spent on probate, improvements, or selling costs.
Assuming PRR Applies Without Evidence: If you claim the inherited property as your main home, HMRC may ask for utility bills or council tax records. Without them, your relief could be denied.
Ignoring Spousal Transfers: Don’t transfer to a spouse you’re separated from—CGT-free transfers only apply if you’re living together.
Here’s a quick table summarising these pitfalls:
Pitfall | Consequence | How to Avoid |
Missing 60-Day Deadline | £100+ penalties, interest | Report via HMRC’s online portal |
No Proof of Costs | Higher taxable gain | Keep receipts, invoices |
Invalid PRR Claim | Relief denied, full CGT due | Maintain residence evidence |
Wrong Spousal Transfer | Unexpected CGT bill | Confirm you’re living together |
Source: HMRC guidelines, verified April 2025
Case Study: A Cautionary Tale
Let’s look at Nerys, a business owner from Bangor. She inherited a property worth £400,000 in 2023 and sold it in 2025 for £450,000, expecting to deduct £20,000 in renovation costs. But she didn’t keep receipts, so HMRC disallowed the deduction. Her taxable gain was £47,000 (after £3,000 allowance), costing £11,280 at 24%. Had she documented the costs, her gain would’ve been £27,000, taxed at £6,480—a £4,800 mistake. She also missed the 60-day reporting deadline, adding a £200 penalty. This shows how small oversights can cost you big.
Plan for Inheritance Tax Interaction
Now, consider this: CGT and Inheritance Tax (IHT) can interact in tricky ways. If the estate paid IHT on the property, you might get IHT relief on your CGT if you sell within three years of the death. This relief reduces the probate value by the IHT paid, lowering your gain. For example, if a £500,000 property had £50,000 IHT paid and you sell for £550,000, your gain is calculated as £550,000 - (£500,000 - £50,000) = £100,000, not £50,000. This is rare, so check with a tax professional.
How a Tax Accountant Can Help You Manage CGT on Inherited Property
Now, you’ve got a solid toolkit for tackling Capital Gains Tax (CGT) on inherited property, from using reliefs to avoiding HMRC pitfalls. But let’s be honest—tax rules can feel like a maze, and one wrong turn can cost you thousands. That’s where a professional tax accountant comes in, especially for UK taxpayers and business owners facing complex inheritance scenarios. In this final part, we’ll explore how a firm like Pro Tax Accountant (https://www.protaxaccountant.co.uk/) can guide you through the CGT jungle, with a detailed case study showing their expertise in action. Plus, we’ll invite you to reach out to their CEO, Mr. Adil, for a free consultation to sort out your CGT worries.
Why You Need a Tax Accountant for CGT
Let’s face it: managing CGT on inherited property isn’t just about crunching numbers. It involves legal, financial, and strategic decisions that can make or break your tax bill. A tax accountant does more than file forms—they’re your strategist, spotting opportunities to save money and keeping you compliant with HMRC’s rules. Firms like Pro Tax Accountant specialise in UK tax law, offering tailored advice for inherited assets. They can help you navigate reliefs, time your sales, and avoid penalties, all while ensuring your paperwork is watertight.
For example, a tax accountant can assess whether Private Residence Relief (PRR) or Business Asset Disposal Relief applies, calculate allowable deductions, and even liaise with HMRC on your behalf if questions arise. They’re also up to date on the latest 2025/26 tax year rules, like the 60-day reporting deadline and the £3,000 Annual Exempt Amount, ensuring you don’t miss a trick. Their expertise is especially valuable for business owners who might use the property in their trade or want to transfer it into a trust.
What Pro Tax Accountant Brings to the Table
So, what makes a firm like Pro Tax Accountant stand out? Based in the UK, they offer personalised services for taxpayers and small business owners, with a focus on CGT, Inheritance Tax (IHT), and property-related issues. Their team, led by CEO Mr. Adil, combines deep tax knowledge with practical experience, helping clients from London to Lerwick. They don’t just churn out generic advice—they dig into your specific situation, whether you’re selling a flat in Manchester or managing a portfolio of inherited properties as a business owner.
Their services include:
CGT Calculations: Accurately working out your taxable gain, factoring in probate values, deductions, and reliefs.
Relief Applications: Advising on PRR, Hold-Over Relief, or Business Asset Disposal Relief, with proper documentation.
HMRC Compliance: Filing your 60-day CGT return and Self-Assessment, avoiding penalties like the £100 late fee.
Strategic Planning: Timing sales or transfers to maximise allowances, such as splitting gains across tax years or transferring to a spouse.
Pro Tax Accountant also offers virtual consultations, making it easy for busy taxpayers to get advice without trekking to an office. Their website (https://www.protaxaccountant.co.uk/) highlights their client-focused approach, with testimonials praising their ability to simplify complex tax issues.
Case Study: How Pro Tax Accountant Saved Owain £18,000
Now, let’s bring this to life with a real-world case study. Meet Owain, a 42-year-old small business owner from Caerphilly who runs a plumbing company. In June 2024, he inherited his father’s house in Newport, valued at £320,000 during probate. Owain planned to sell it in August 2025 to fund a new business venture, expecting a sale price of £380,000—a £60,000 gain. As a higher-rate taxpayer earning £65,000 a year, he faced a hefty CGT bill. Feeling overwhelmed, he contacted Pro Tax Accountant in July 2024 after finding them online.
Step 1: Initial Assessment
Owain met virtually with Mr. Adil, who reviewed the probate documents and Owain’s financial situation. Adil noted that Owain’s wife, Ffion, earned £30,000, making her a basic-rate taxpayer. The £60,000 gain, after Owain’s £3,000 allowance, would be taxed at 24% (£13,680) if Owain sold alone. Adil saw an opportunity to use Ffion’s allowance and lower tax rate.
Step 2: Strategic Transfer
Adil advised transferring 50% of the property to Ffion, as spousal transfers are CGT-free. Pro Tax Accountant coordinated with a solicitor to draft a deed of variation, costing £1,200 (an allowable deduction). This split the ownership, so each would have a £30,000 gain upon sale. Ffion’s basic-rate band had £20,270 left (£50,270 - £30,000), meaning her gain would be taxed at 18%, while Owain’s would stay at 24%.
Step 3: Maximising Deductions
Owain had spent £8,000 on a new roof and £4,000 on estate agent and conveyancing fees. Pro Tax Accountant ensured these were documented as allowable deductions, reducing each spouse’s gain by £6,600 (£13,200 total). After deductions, Owain’s gain was £23,400 and Ffion’s was £23,400. Each used their £3,000 allowance, leaving £20,400 taxable per person.
Step 4: Calculating the Savings
Ffion paid 18% on her £20,400 (£3,672), while Owain paid 24% on his £20,400 (£4,896), totalling £8,568 in CGT. Without Pro Tax Accountant’s advice, Owain’s solo sale would’ve cost £13,680. The transfer saved £5,112. Additionally, Adil suggested delaying the sale to April 2025 to use two tax years’ allowances, but Owain needed the funds sooner. Still, the deductions and spousal transfer slashed his bill significantly.
Step 5: HMRC Compliance
Pro Tax Accountant filed the 60-day CGT return for both Owain and Ffion in September 2025, ensuring no penalties. They also prepared their Self-Assessment returns for January 2026, including all deductions and reliefs. Owain avoided a potential £200 penalty for late reporting, which he admitted he’d have missed without their help.
Bonus: Business Integration
Since Owain was a business owner, Adil explored using the property in his plumbing business before the sale, which could’ve qualified for Business Asset Disposal Relief (10% CGT rate). However, Owain needed the cash quickly, so they stuck with the spousal transfer. Adil’s team also advised on reinvesting the sale proceeds into the business tax-efficiently, saving Owain further on future taxes.
This case study shows how Pro Tax Accountant turned a daunting tax situation into a manageable one, saving Owain £5,112 in CGT and countless headaches.
How Much Could You Save?
Here’s a quick table to show the potential impact of professional advice, based on Owain’s case:
Scenario | Taxable Gain | CGT Rate | CGT Due | Savings |
Owain Sells Alone | £57,000 | 24% | £13,680 | - |
With Pro Tax Accountant (Split) | £40,800 (£20,400 each) | 18% (Ffion), 24% (Owain) | £8,568 | £5,112 |
With Deductions Only | £46,800 | 24% | £11,232 | £2,448 |
Source: Hypothetical case based on 2025/26 tax rates, HMRC guidelines
Get Expert Help from Pro Tax Accountant
None of us is a tax expert, but you don’t have to be. If you’ve inherited a property and are worried about CGT, Pro Tax Accountant can help you navigate the rules, maximise reliefs, and avoid costly mistakes. Their CEO, Mr. Adil, and his team offer a free initial consultation to discuss your situation, whether you’re a taxpayer in Cardiff or a business owner in Glasgow. They’ll tailor a strategy to your needs, from spousal transfers to trust planning, ensuring you keep more of your inheritance.
Ready to take control of your CGT? Contact Pro Tax Accountant today at www.protaxaccountant.co.uk/contact or call their office to book your free consultation with Mr. Adil. Don’t let HMRC take more than they should—get expert help and save thousands.
Summary of All the Most Important Points
Capital Gains Tax (CGT) applies to the profit made when selling an inherited property, calculated as the sale price minus the probate value, with a £3,000 annual exempt amount for individuals in the 2025/26 tax year.
The CGT rate for residential property is 18% for basic-rate taxpayers (income up to £50,270) and 24% for higher or additional-rate taxpayers, with payment due within 60 days of sale completion.
Private Residence Relief (PRR) exempts gains from CGT if the inherited property is your main home, requiring evidence like utility bills to prove residency.
Transferring the property to a spouse or civil partner is CGT-free and allows you to use both partners’ £3,000 allowances, potentially reducing the tax rate to 18% for one spouse.
Delaying a sale across two tax years can double your annual exempt amount to £6,000, lowering the taxable gain, but requires careful legal planning.
Deductible expenses, such as probate fees, improvement costs like extensions, and selling costs, can significantly reduce your taxable gain if properly documented.
Business Asset Disposal Relief (BADR) can lower the CGT rate to 10% (up to a £1 million lifetime limit) if the property is used in your trade, such as a business office.
Hold-Over Relief allows deferring CGT when gifting the property to someone or a trust, with the recipient taking on the probate value as their base cost.
Missing the 60-day reporting deadline or failing to document expenses can lead to penalties starting at £100 and higher taxable gains, so keep detailed records.
Inheritance Tax (IHT) paid on the estate may reduce the CGT base cost if the property is sold within three years, but this relief is rare and requires professional advice.
FAQs
1. Q: Can you inherit a property without paying any taxes in the UK?
A: You don’t pay Capital Gains Tax (CGT) or Income Tax when you inherit a property, but Inheritance Tax (IHT) may apply if the estate’s value exceeds £325,000 (or £500,000 if left to a spouse or charity) in the 2025/26 tax year.
2. Q: Does the 7-year rule apply to inherited property for CGT purposes?
A: The 7-year rule applies to IHT, not CGT; for CGT, you’re only taxed on gains made after inheriting the property, based on its probate value.
3. Q: Can you avoid CGT by reinvesting the proceeds from an inherited property sale?
A: Unlike some countries, the UK doesn’t offer CGT deferral for reinvesting proceeds from an inherited property sale, so you’ll still owe tax on the gain.
4. Q: How does CGT apply if you inherit a property abroad?
A: If you’re a UK resident, you pay CGT on gains from selling an inherited overseas property, but you may claim a credit for foreign taxes paid, subject to UK tax rules.
5. Q: Can you claim losses from another asset to offset CGT on an inherited property?
A: Yes, you can offset capital losses from other assets (like shares) against the gain from selling an inherited property, reducing your CGT liability.
6. Q: What happens to CGT if you inherit a property in a trust?
A: If you inherit a property via a trust, CGT may apply when the trust disposes of it, but trustees can use a £1,500 annual exempt amount, and beneficiaries may face CGT upon receiving the property.
7. Q: Are there any CGT exemptions for inherited properties left to charities?
A: If you inherit a property and donate it to a UK-registered charity, no CGT applies, as charitable gifts are exempt from tax.
8. Q: How does CGT work if you inherit a property jointly with others?
A: Each co-owner is taxed on their share of the gain, using their own £3,000 annual exempt amount and tax rate, based on their portion of the sale proceeds.
9. Q: Can you reduce CGT by selling an inherited property at a loss?
A: If you sell an inherited property for less than its probate value, you can claim a capital loss to offset against other gains, reducing future CGT.
10. Q: Does CGT apply if you transfer an inherited property to your children?
A: Gifting an inherited property to your children is a disposal for CGT purposes, and you may owe tax on any gain unless you claim Hold-Over Relief to defer it.
11. Q: What records do you need to keep for CGT on an inherited property?
A: You should keep probate valuation documents, receipts for improvement costs, legal fees, and sale-related expenses for at least seven years to support your CGT calculations.
12. Q: Can you appeal a CGT assessment on an inherited property if you think it’s wrong?
A: Yes, you can appeal an HMRC CGT assessment within 30 days, providing evidence like probate valuations or expense receipts to dispute the calculation.
13. Q: How does CGT apply if you renovate an inherited property before selling?
A: Renovation costs that enhance the property’s value (e.g., adding a conservatory) can be deducted from the gain, but routine repairs (e.g., painting) cannot.
14. Q: Is CGT different for non-residents selling an inherited UK property?
A: Non-residents pay CGT on UK residential property gains since April 2015, reported within 60 days, with rates of 18% or 24% depending on their UK tax status.
15. Q: Can you use a tax-free ISA to offset CGT on an inherited property?
A: No, ISAs are for Income Tax and dividend tax exemptions; they cannot be used to offset CGT on property sales.
16. Q: What happens if you don’t pay CGT on time for an inherited property sale?
A: Late payment incurs a £100 penalty, plus 7% annual interest on the overdue amount, and HMRC may pursue further action if unpaid.
17. Q: Can you claim CGT relief if the inherited property was your parents’ second home?
A: If the property wasn’t your main residence, Private Residence Relief doesn’t apply, but you can still use your £3,000 annual exempt amount and allowable deductions.
18. Q: How does CGT apply if you inherit a property but don’t sell it?
A: No CGT is due until you dispose of the property (e.g., by selling or gifting), as merely holding it doesn’t trigger a tax liability.
19. Q: Can you deduct mortgage costs from CGT on an inherited property?
A: Mortgage interest or repayment costs aren’t deductible for CGT, but fees related to settling the mortgage during probate may be allowable.
20. Q: Does CGT apply if you inherit a property and use it as a holiday let?
A: If you use the property as a holiday let, CGT applies on any gain when sold, but you may qualify for Business Asset Disposal Relief if it’s part of a qualifying business.
Click on the above arrow to expand the text
The Author:
Adil Akhtar, ACMA, CGMA, CEO and Chief Accountant of Pro Tax Accountant, is an esteemed tax blog writer with over 10 years of expertise in navigating complex tax matters. For more than three years, his insightful blogs have empowered UK taxpayers with clear, actionable advice. Leading Advantax Accountants as well, Adil blends technical prowess with a passion for demystifying finance, cementing his reputation as a trusted authority in tax education.
Email: adilacma@icloud.com
Disclaimer:
The information provided in our articles is for general informational purposes only and is not intended as professional advice. While we strive to keep the information up-to-date and correct, Pro Tax Accountant makes no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the website or the information, products, services, or related graphics contained in the articles for any purpose. Any reliance you place on such information is therefore strictly at your own risk. Some of the data in the above graphs may to give 100% accurate data.
We encourage all readers to consult with a qualified professional before making any decisions based on the information provided. The tax and accounting rules in the UK are subject to change and can vary depending on individual circumstances. Therefore, Pro Tax Accountant cannot be held liable for any errors, omissions, or inaccuracies published. The firm is not responsible for any losses, injuries, or damages arising from the display or use of this information.
.png)