Do I pay Capital Gains Tax on inherited property?

If you’ve recently been left a house or flat in someone’s Will, you may be wondering: “Do I pay Capital Gains Tax on inherited property?”

The simple answer is that you don’t pay CGT when you inherit the property, but you may have to when you sell it.

In this article, we look at when Capital Gains Tax applies to inherited property, how you can calculate it, and what you can do to reduce your bill.

When does Capital Gains Tax apply to inherited property?

When someone dies, their estate needs to be assessed for Inheritance Tax. Depending on circumstances, this may apply when an estate is worth more than £325,000. If Inheritance Tax is due, this needs to be settled before assets are distributed to beneficiaries. For more information, see our Guide to UK Inheritance Tax Planning.

If Capital Gains tax on inherited property does arise, this happens later on when you decide to sell, gift or transfer the property and it has increased in value since you inherited it.

For example, if you inherited a house with a probate value of £300,000 and later sold it for £350,000, your capital gain is £50,000 before deducting allowable costs and exemptions.

How to calculate Capital Gains Tax on inherited property

If you need to calculate CGT on inherited property, follow the steps below:

• Note the probate value. This is the market value of the property on the date of the benefactor’s death.
• Establish the sale price. This is how much you are paid by the buyer.
• Deduct allowable expenses. These include costs such as solicitor and estate agent fees, as well as the cost of any capital improvements (such as an extension or new kitchen).
• Apply your annual CGT exemption (if you have any remaining). For the 2025/26 tax year, this is £3,000 per person. (You can find historic rates here).
• Apply the correct CGT rate to the Capital Gain. For residential property, this is 18% for basic rate taxpayers and 24% for higher rate taxpayers.

If you share ownership of the property, each person can use their own annual CGT allowance on their portion of the proceeds.

What happens if I move into the property?

If you decide to live in a property that you’ve inherited, you should qualify for Private Residence Relief. This can reduce or eliminate Capital Gains Tax when you sell.

You can learn more by reading our article on Private Residence Relief. However, the basic principle is that PRR applies only to the time a property was genuinely your main home. For example, if you owned the property for 10 years and it was your main residence for two years, 20% of the gain should be exempt from CGT under the Private Residence Relief.

Other reliefs and exemptions

It’s worth knowing about the following reliefs and exemptions, but we strongly recommend you ask your THP accountant for CGT advice that’s tailored to your own circumstances.

• Lettings relief. This may apply if you lived in the property at the same time as your tenants.
• Spousal transfers. If you transfer your share of the property (or the whole property) to your spouse or civil partner, no CGT is payable.
• Capital losses. If you have made any capital losses, you can use them to offset your CGT bill for your inherited property. It’s always worth registering capital losses with HMRC when they occur as they can be carried forward indefinitely.

Getting effective tax planning advice before you sell could save you thousands. This is particularly the case if your property has significantly risen in value.

Reporting Capital Gains to HMRC

If you do need to pay Capital Gains Tax on inherited property, you have to act fast. These days, you only have 60 days from the sale to calculate, report and pay CGT to the taxman. If you miss this deadline, you can get hit with penalties and interest.

To prevent this happening, we strongly recommend you use our Fast Track CGT on Property Service. We can not only advise you on ways of saving money but, once we have all the information we need, we’ll submit your return within 48 hours.

Summary

We hope this guide to Capital Gains Tax on inherited property has helped you. In summary:

• You don’t pay CGT when you inherit a property (although you may have to pay Inheritance Tax)
• You may need to pay CGT if you later sell or gift the property and it has risen in value
• Your CGT bill depends on the probate value, sale price, allowable costs and available reliefs.

Because CGT rules can be complex, it’s best to seek professional advice early – and ideally before you put your property on the market or gift it. Our property specialists would be delighted to help you understand your position, calculate any gains, and help you plan the most tax efficient way to sell or transfer your inherited property.

> Learn more about our Fast Track CGT on Property Service.