Inherited Property CGT: Calculating Tax On Value Growth Between Probate and Sale

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Inherited Property CGT: Calculating Tax on Value Growth Between Probate and Sale in the UK

When you inherit a property, no Capital Gains Tax is payable at the point of inheritance. When you inherit property, your base cost for CGT purposes is the probate value (market value at date of death), not what the deceased originally paid. CGT arises only when you sell, and only on the gain between the probate value and the eventual sale price, reduced by allowable costs.

For 2026/27, that gain is taxed at 18% for basic rate taxpayers and 24% for higher or additional rate taxpayers on residential property. Personal representatives selling during estate administration pay 24% throughout with no basic rate slice.

The Base Cost for CGT on Inherited Property

Assets pass to the deceased's personal representatives at market value on the date of death, but no tax is charged on the uplift. The personal representatives and ultimately the beneficiaries start with a new base cost equal to the market value at death, often referred to as the probate value.

This CGT-free uplift is one of the most significant reliefs in the UK tax system. A property purchased for £80,000 forty years ago that is worth £550,000 at the date of death produces no CGT for the estate. The £470,000 gain accumulated during the deceased's lifetime is wiped clean for CGT purposes. The inheriting beneficiaries start from £550,000 as if they had purchased at that price.

Why Probate Value Matters and How It Is Established

The probate value is the market value of the property on the date of death, not the date probate is granted, not the date the property is transferred to the beneficiary, and not the date of sale. This probate value is typically established by a professional RICS surveyor valuation required for the probate process, or by obtaining two or three estate agent valuations and taking the average.

HMRC's Shares and Assets Valuation team and, for property, the District Valuer, may query the probate value if it appears understated. Where the IHT400 contains a professionally supported valuation, challenges are less common. Where the estate is under the IHT threshold and no formal professional valuation was obtained for IHT purposes, the CGT base cost still stands at market value on the date of death, and any later dispute about what that value actually was falls to the taxpayer to evidence.

This creates a practical problem for beneficiaries who did not obtain a formal valuation at the time. If the property sells years later and HMRC questions the base cost used in the CGT computation, a retrospective valuation will need to be obtained. The difference between an accurate probate value and an understated one directly affects the CGT bill.

When Probate Takes Months to Obtain

Probate in England and Wales can take six months to a year in complex cases. During that period, the date of death value remains fixed as the base cost regardless of what happens to property values while probate is awaited. A property worth £400,000 at death that rises to £440,000 by the time probate is granted and the estate can proceed is inherited at the £400,000 base cost. If sold immediately on receipt of probate at £440,000, the gain is £40,000, not nil. The delay between death and sale creates a taxable gain even where the family intends to sell as quickly as possible.

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Calculating the Capital Gain: What Can Be Deducted

Sale proceeds less incidental costs of disposal minus base cost (acquisition cost plus incidental acquisition costs plus capital enhancement) equals the chargeable gain. 

For an inherited property, this means:

Sale price minus (probate value + costs incurred in establishing the base cost at death + capital improvement costs after inheritance + costs of sale) equals the chargeable gain.

Allowable Deductions

Estate agent fees on the sale are deductible: these typically range from 1% to 2.5% of the sale price. Legal and conveyancing fees paid on the sale are deductible. These two costs alone can reduce the gain on a £600,000 sale by £15,000 to £20,000.

Capital improvement costs are deductible where they represent genuine capital expenditure enhancing the property, such as an extension, a new kitchen installation that constitutes a permanent improvement, or conversion of a loft space into a bedroom. These must be capital in nature, not repairs.

The cost of obtaining the probate valuation itself may be deductible as an incidental cost of acquisition, provided it was specifically obtained to determine the CGT base cost or as a required part of the probate process. This is worth capturing and recording at the time.

What Cannot Be Deducted

Routine repairs, redecoration, and maintenance costs are not allowable deductions for CGT purposes. A beneficiary who spends £15,000 on repainting, replacing carpets, and fixing minor defects before putting the property on the market cannot deduct those costs.

IHT paid on the estate is generally not deductible from the CGT gain on individual assets within it, though there are limited exceptions. The two taxes operate on separate bases: IHT on the total estate value at death, CGT on individual asset gains after death.

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CGT Rates on Inherited Property in 2026/27

For the 2026/27 tax year, CGT is charged at 18% on gains that fall within the unused basic rate income tax band and 24% on gains above it. Trustees and personal representatives pay 24% throughout.

Whether a beneficiary pays 18% or 24% depends on their total taxable income for the tax year of sale, combined with the chargeable gain itself. The gain is added to income, and the portion that falls within the remaining basic rate band (income below £50,270 for 2026/27) is taxed at 18%. Any gain above that level is taxed at 24%.

For a beneficiary with taxable employment income of £35,000, the remaining basic rate band headroom is approximately £15,270 (£50,270 minus £35,000). The first £15,270 of a chargeable gain after the £3,000 annual exempt amount is taxed at 18% and the balance at 24%.

Personal Representatives Selling During Administration

Where the property is sold by the personal representatives before it is assented (transferred) to the beneficiaries, it is the PRs rather than the beneficiaries who are subject to CGT. Trustees and personal representatives pay 24% throughout with no basic-rate slice.

Personal representatives pay CGT on sales during administration, using estate funds and the £3,000 annual exempt amount per year, for a maximum of three years during the administration period.

The three-year limit on the PR's annual exempt amount is a detail that is often missed. An estate that takes four or five years to administer (not uncommon in complex or disputed estates) loses the annual exempt amount in years four and five. In those later years, every pound of chargeable gain is taxable.

A Worked Example: Two Years Between Probate and Sale

A beneficiary inherits a residential property with a probate value of £380,000. The estate is wound up and the property is assented in her name eighteen months after the date of death. She is unable to sell immediately due to market conditions and eventually sells three years after the date of death for £440,000.

Gain calculation: Sale price: £440,000. Less probate value (base cost): £380,000. Less estate agent fees (1.5% of £440,000): £6,600. Less legal fees on sale: £2,200. Less conveyancing fee at assent: £800. Chargeable gain before annual exempt amount: £50,400. Less annual exempt amount: £3,000. Net chargeable gain: £47,400.

The beneficiary has employment income of £45,000. Her remaining basic rate headroom is £5,270 (£50,270 minus £45,000). She pays 18% on the first £5,270 and 24% on the remaining £42,130.

CGT at 18%: £5,270 × 18% = £948.60. CGT at 24%: £42,130 × 24% = £10,111.20. Total CGT: approximately £11,060.

This must be reported and paid within 60 days of the completion of the sale.

Principal Private Residence Relief and Inherited Property

PPR relief eliminates CGT on a property that has served as the beneficiary's only or main home for all or part of their ownership period. The ownership period for the beneficiary starts at the date of the deceased's death, not the date of assent or the date the beneficiary physically moved in.

The final 9 months of ownership always qualify for PPR even if the beneficiary no longer lives there.

A beneficiary who inherits a property in January 2024, moves in as their main home in June 2024, and sells in October 2026 has an ownership period of approximately 33 months (January 2024 to October 2026). They lived in the property for approximately 28 months (June 2024 to October 2026). The 9-month final period also counts as deemed residence. The proportion of the gain qualifying for PRR is (28 + 9) / 33, which approaches the full period. The available PRR fraction eliminates nearly the entire gain in this scenario.

The relief is more limited where the beneficiary never occupies the property as a main home or where they occupied it only briefly. An inherited investment property sold without any period of main home occupation attracts no PPR.

Multiple Beneficiaries: Splitting the Gain and the Allowances

Each beneficiary has a £3,000 annual CGT exemption for 2026/27. Where multiple beneficiaries share ownership, each can use their own allowance against their share of the gain.

Where two siblings each inherit a 50% share of a property with a probate value of £400,000 and sell for £480,000, each holds a 50% interest with a base cost of £200,000. Each has a disposal at £240,000 against a base cost of £200,000, giving a gain of £40,000 before costs. Each deducts their £3,000 annual exempt amount and applies their own applicable CGT rate. If one sibling is a basic rate taxpayer and the other a higher rate taxpayer, they pay different rates on their respective shares.

Where two siblings inherit a property in equal shares, and one subsequently buys out the other, the sibling who bought out now holds the property with a blended base cost: the original inherited share at probate value and the purchased share at the buyout price. Getting this right is critical because the two halves are treated as separate acquisitions for CGT purposes.

The 60-Day Reporting Requirement: The Most Commonly Missed Deadline

For disposals of UK residential property, CGT must be reported and paid within 60 days of the completion of the sale, using HMRC's UK Property Reporting Service. This applies whether the seller is an individual beneficiary, a personal representative, or a trustee.

Failure to report within 60 days attracts a £100 late penalty, with additional penalties if further delayed.

Conveyancers do not notify HMRC of the sale on your behalf. The obligation falls on the taxpayer or their adviser. The 60-day clock runs from completion, not from exchange, and it does not pause because the seller is unaware of the rule.

The CGT reported within the 60-day window is a payment on account. The final liability is settled through the Self Assessment return for the relevant tax year. Where the 60-day payment overstates the liability (because the gain was smaller than initially estimated), a refund arises through the Self Assessment process.

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Selling Below the Probate Value

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

Property markets fall as well as rise. A beneficiary who inherits at a probate value of £350,000 and eventually sells for £320,000 has a capital loss of £30,000 (before adjusting for costs of sale). That loss is available to set against gains elsewhere in the same tax year, or carried forward indefinitely until used.

There is also a specific IHT interaction worth noting. Where a property sells for less than its probate value within the administration period, executors can claim a reduction in the IHT already paid, using the sale price as the basis for the IHT calculation instead of the probate value. This is a separate relief from CGT loss relief but can be valuable where the property market declines significantly after the date of death.

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Key Takeaways

• When you inherit a property, the base cost for CGT purposes is the market value at the date of death, the probate value, not the original purchase price paid by the deceased. 

• CGT rates on residential property for 2026/27 are 18% for the basic rate portion and 24% for the higher/additional rate portion. Personal representatives pay 24% throughout with no basic rate slice.

• The annual exempt amount for 2026/27 is £3,000 for individuals and £1,500 for most trusts. Where multiple beneficiaries share ownership, each can apply their own annual exempt amount against their share of the gain.

• Allowable deductions include estate agent fees, legal costs on sale, and capital improvement costs. Repairs, redecoration, and maintenance are not allowable.

• PPR relief can eliminate the gain entirely where the beneficiary used the inherited property as their main home. The final 9 months of ownership always count as deemed residence.

• The 60-day reporting deadline for UK residential property sales runs from completion. A £100 automatic penalty applies from day 61. Conveyancers do not file on the seller's behalf.

• If the property sells for less than the probate value, a capital loss arises. This can be offset against other gains in the same tax year or carried forward indefinitely.

FAQS

Q1: What happens if the inherited property was rented out by the deceased and I continue letting it before selling, does this affect the CGT calculation on the post-probate growth?

A1: In my experience with clients who’ve taken over a family rental, continuing to let the property doesn’t change the core CGT base, which remains the probate value. However, any income from rents is taxable as property income separately, and you can claim relevant expenses against that. For the capital gain on sale, you might qualify for additional deductions if you’ve made improvements during your ownership, but watch out for private residence relief, it’s unlikely to apply fully if it was never your main home. Consider a freelancer in Manchester who inherited a terraced house previously let by their parent: the post-probate appreciation was taxed at the residential rate, but keeping good records of maintenance costs saved them a tidy sum. Always track everything meticulously to avoid disputes with HMRC.

Q2: Can joint beneficiaries claim the annual CGT exemption individually when selling an inherited property together, and what’s the best way to handle the division?

A2: Well, it’s worth noting that each beneficiary can use their own £3,000 annual exempt amount where the property is appropriated to them before sale. If the estate sells it directly, only the estate’s exemption applies, which can be less efficient. I’ve seen siblings in Birmingham divide things neatly by transferring shares first, one took on more of the gain but offset it with losses from other investments. For high-earners, this can make a real difference in banding. Get the timing right and speak to your solicitor early; it’s a common pitfall that leads to unnecessary tax.

Q3: How do Scottish taxpayers fare differently with CGT on inherited property compared to the rest of the UK, especially with the post-probate value growth?

A3: In my practice, Scottish clients often overlook the Land and Buildings Transaction Tax nuances, but for CGT itself the rules align closely with England and Wales. The gain from probate value to sale is still chargeable, though income tax bands differ slightly north of the border, which can push more of the gain into higher CGT rates for residential property. One client, a self-employed consultant in Edinburgh, benefited from careful timing of the sale around their tax year to manage their overall liability. Regional differences are subtle but matter for overall planning, always factor in your full tax picture.

Q4: What if the probate valuation turns out to be too low once the property sells for significantly more, can I adjust it for CGT purposes?

A4: It’s a common mix-up, but you can generally use a more accurate market value at the date of death as your base cost for CGT, even if the initial probate figure was conservative, provided you have solid evidence like contemporaneous valuations. HMRC won’t necessarily reopen the IHT position easily, but for your gain calculation, strong supporting docs help. I recall a shop owner near Leeds whose surveyor’s report from the time of death saved thousands by justifying a higher base, it’s about being prepared with the right paperwork rather than hoping for the best.

Q5: For self-employed business owners who inherit property used partly for their trade, how does this interact with CGT on the growth after probate?

A5: Business owners often face extra layers here. If part of the inherited property was used for your self-employed trade, you may claim some rollover relief or private residence elements, but the post-probate gain on the residential portion is still chargeable. A hypothetical case: a gig economy driver in Bristol inherited their parent’s semi with a home office, by apportioning the gain reasonably and claiming allowable costs for business use, they reduced the hit. Keep detailed records of usage; it’s one of those areas where professional advice pays for itself quickly.

Q6: Does selling the inherited property quickly after probate increase the chance of HMRC challenging the valuation or the gain?

A6: In my experience, a quick sale can actually strengthen your position if the sale price is close to the probate value, as it supports the original market valuation at death. But if there’s a big jump, be ready with evidence of market changes. One client, a PAYE worker who sold within months due to relocation, avoided issues by having two independent valuations ready. The key is transparency, sudden sales don’t automatically trigger audits, but poor records do.

Q7: How should high-earners with multiple income sources approach reporting CGT from an inherited property sale to avoid underpayment penalties?

A7: High-earners need to be especially vigilant because the residential property CGT rates can stack onto their existing income. Report via the UK Property Disposal Service within 60 days of completion if applicable, or through your Self Assessment. I’ve advised several clients with side businesses to model the impact on their tax code early. A practical tip: use the gain to offset any capital losses elsewhere in the same year, it’s a straightforward way to ease the burden that many miss.

Q8: What are the CGT implications if I move into the inherited property and make it my main residence before selling, can I claim any relief on the post-probate growth?

A8: You can potentially claim Principal Private Residence Relief for the period it was your main home, which can cover part of the gain from probate value onwards. However, it won’t wipe out the whole amount if you’ve owned it for a while beforehand. I’ve seen this work well for a young professional in London who lived there for two years post-inheritance, the relief applied proportionally and significantly cut the bill. Just be aware of the final period allowance and keep utility bills as proof of residence.

Q9: If the estate sells the inherited property rather than distributing it first, who pays the CGT on the value growth, and are there ways to optimise this?

A9: The personal representatives (executors) handle the tax from the estate’s funds, using the estate’s annual exemption. Appropriating to beneficiaries first often allows multiple personal exemptions and potentially lower individual rates. In practice, with a family in the Midlands, we saved by doing a timely transfer, it required coordination but avoided the estate paying at a flat rate without offsets. It’s one of those strategic decisions best made with your accountant and solicitor in tandem.

Q10: For someone with overseas elements, like a non-UK resident beneficiary inheriting UK property, what extra considerations apply to the CGT on sale after probate?

A10: Non-residents are still liable for UK CGT on residential property disposals, calculated from the probate value in the usual way. You may need to register with HMRC and report within 60 days. I once assisted a client who had moved to Spain: by claiming allowable costs like currency conversion where relevant and understanding double tax relief, we kept things efficient. UK source gains remain taxable here, so plan your residency status carefully around the sale.

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About the Author:

Adil Akhtar, ACMA, CGMA, FCMA, (membership ID is 990250923) serves as CEO and Chief Accountant at Pro Tax Accountant, bringing over 18 years of expertise in tackling intricate tax issues. As a respected tax blog writer, Adil has spent more than eighteen years delivering clear, practical advice to UK taxpayers. He also leads Advantax Accountants, (registered with Companies House), combining technical expertise with a passion for simplifying complex financial concepts, establishing himself as a trusted voice in tax education.

Email: adilacma@icloud.com

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