Capital Gains Tax on Inherited Property UK: CGT Rates, Reliefs & How to Calculate 2025

If you've inherited property in the UK, you might be wondering about Capital Gains Tax. Good news: you don't pay CGT when you inherit—only if you later sell the property for more than its probate value. This guide explains everything you need to know about CGT on inherited property, including rates, reliefs, and how to minimize your tax bill.

Do You Pay Capital Gains Tax on Inherited Property?

No, you do not pay CGT when you inherit property. You only pay Capital Gains Tax if you sell the property for MORE than its value at the date of death (known as the probate value).

When you inherit property, you automatically receive it at its probate value. This becomes your "base cost" for CGT purposes. If you sell at or below this value, there's no CGT to pay. You only pay tax on any increase in value between the probate value and your eventual sale price.

How Capital Gains Tax Works on Inherited Property

The Probate Value: Your Starting Point

The probate value (also called the "market value at date of death") is crucial for CGT calculations. This is the property's market value on the date the person died, established by:

• Professional RICS surveyor valuation (typically £150-500, required for probate)
• Estate agent valuations (free, usually get 2-3 and take average)
• Comparable sales data from Land Registry

This probate value becomes your "base cost" for CGT—it's as if you purchased the property at this price. Any gain the deceased made from their original purchase to death is "wiped out"—you don't pay tax on it.

What Costs Can You Deduct?

You can reduce your taxable gain by deducting certain costs associated with selling the property:

Allowable costs:

• Estate agent fees (typically 1-3% of sale price)
• Solicitor or conveyancer fees (£850-1,500 typically)
• Capital improvements you made (new extension, loft conversion, new kitchen)
• Probate valuation fees
• EPC (Energy Performance Certificate) and other selling costs

NOT allowable:

• Mortgage payments
• Buildings or contents insurance
• General repairs and maintenance (repainting, fixing leaks)
• Council tax and utility bills

CGT Rates on Property (2024/25)

The rate of CGT you pay on property depends on your total taxable income for the tax year:

Important: Your income AND your capital gain are added together to determine which rate you pay. If this pushes you into the higher rate band, you'll pay 18% on the portion within the basic rate, and 24% on the portion in the higher rate.

Annual CGT Allowance

Every UK taxpayer gets an annual Capital Gains Tax allowance (also called the "annual exempt amount"). For the 2024/25 tax year, this is:

• £3,000 per person

This means the first £3,000 of your total capital gains in a tax year (6 April to 5 April) is tax-free. Note that this allowance was reduced from £6,000 in 2023/24.

For married couples or civil partners: Both partners get their own £3,000 allowance (£6,000 combined). You can transfer the property to your spouse before selling to take advantage of both allowances—this is completely tax-free between spouses.

Private Residence Relief: The Most Powerful CGT Relief

Private Residence Relief (PRR) is the most effective way to reduce or completely eliminate CGT on an inherited property. If the property was your only or main residence throughout your ownership, you pay NO CGT at all.

Full Relief (No CGT)

You qualify for full Private Residence Relief if:

• You lived in the property as your only or main home from when you inherited it until you sold it
• You didn't rent out any part of the property
• The grounds are less than 0.5 hectares (about 1.2 acres)
• You didn't use any part exclusively for business

Partial Relief

If you only lived in the property for part of the time you owned it, you get proportional relief:

• Calculate the number of months you lived there as your main residence
• You automatically get the final 9 months counted as occupied (even if the property was empty)
• Relief = (months occupied / total months owned) × gain

When You Can't Claim Private Residence Relief

• You lived in your own home elsewhere (the inherited property wasn't your main residence)
• You only visited the property occasionally
• The property was always rented out
• You used it as a holiday home

Reporting and Payment Deadlines

Critical deadline: You must report and pay CGT within 60 days of completing the property sale.

This is a strict deadline. The 60 days start from:

• The completion date (when ownership legally transfers)
• NOT the exchange date
• NOT when you receive the money

How to Report

Use the UK Property Reporting Service:

1. Create a Government Gateway account (if you don't have one)
2. Access the "Report and pay Capital Gains Tax on UK property" service
3. Enter your property sale details
4. Calculate your gain using HMRC's online calculator
5. Pay immediately by debit card or bank transfer

You'll also need to include the gain in your Self Assessment tax return for the same tax year (even if you've already paid through the Property Reporting Service).

Late Filing Penalties

• Up to 3 months late: £100 fixed penalty
• 3-6 months late: £300 fixed penalty
• Over 6 months late: higher penalties plus interest
• Interest charged on unpaid tax: Bank of England base rate + 2.5%

Strategies to Reduce CGT on Inherited Property

1. Live in the Property (Most Effective)

Moving into the inherited property as your main residence is the most powerful way to reduce CGT:

• If you live there throughout your ownership: NO CGT
• Even living there for part of the time gives proportional relief
• You get the final 9 months counted automatically

2. Transfer to Spouse Before Selling

Married couples and civil partners can transfer property between themselves with no CGT:

• Transfer 50% to spouse before selling
• Both use £3,000 annual allowance = £6,000 tax-free
• Can save £540-720 in CGT

3. Time the Sale

• If close to the tax year end (5 April), consider waiting until after 6 April to use next year's £3,000 allowance
• Spread sales across tax years if inheriting multiple properties

4. Offset Other Losses

If you made losses on other assets (shares, other property) in the same tax year, you can offset these against your property gain.

5. Claim All Allowable Costs

Don't miss deductible expenses:

• Estate agent and solicitor fees
• Capital improvements (not repairs)
• Probate valuation costs

Special Situations

Multiple Beneficiaries

If you inherit property jointly with siblings or other beneficiaries:

• Each beneficiary calculates CGT on their own share
• Each gets their own £3,000 annual allowance
• Can often reduce total tax significantly

Property Abroad

Inherited property outside the UK has different rules:

• May need to pay CGT in the country where property is located
• May also need to pay UK CGT
• Double taxation relief may be available
• Seek specialist advice

Property Held in Trust

If property is in a trust:

• Complex CGT rules apply
• Trustees may be liable for CGT
• Lower annual allowance (£1,500 for most trusts)
• Professional advice essential

Record Keeping

Keep the following records for at least 6 years after the tax year you sold the property:

• Probate valuation report
• Property sale completion statement
• Receipts for estate agent and solicitor fees
• Receipts for any improvements made
• CGT calculation and return
• Payment confirmation
• Correspondence with HMRC

When to Get Professional Help

Consider hiring a tax advisor or accountant if:

• Your capital gain exceeds £50,000
• You're claiming Private Residence Relief for partial occupation
• Multiple beneficiaries are involved
• Property was used for business purposes
• Property is located abroad
• Property is held in trust
• You're uncertain about any aspect of the calculation

Frequently Asked Questions

Do I pay CGT if I sell inherited property immediately?

If you sell within a month or two of death at around the probate value, there's unlikely to be any gain, so no CGT. However, if the property has increased in value even in this short time, CGT may be due on the gain.

Can I avoid CGT by selling the property to a family member below market value?

No. HMRC treats this as if you sold at full market value, and you'll pay CGT on the difference between probate value and market value (not what you actually received).

What if the probate value was higher than what I can sell the property for?

If the property has decreased in value since death, you may have a capital loss. You can use this loss to offset other capital gains in the same tax year or carry the loss forward to future years.

Do I pay both Inheritance Tax and CGT on inherited property?

These are separate taxes. Inheritance Tax is paid by the estate (if it exceeds the £325,000 threshold plus Residence Nil Rate Band). CGT is paid by YOU if you later sell the property for more than probate value. However, you don't usually pay both on the same gain.

Can I claim Private Residence Relief if I lived in the property before the person died?

No. Private Residence Relief only counts for the period AFTER you inherited the property (after the date of death). Living there before doesn't count towards the relief.