Capital Gains Tax When Selling Assets From an Estate

Executors who need to sell assets — shares, property, jewellery, antiques, or other investments — to fund the estate or distribute to beneficiaries may inadvertently trigger a CGT liability if they do not understand how the rules apply. The good news is that the CGT uplift on death eliminates all gains accumulated during the deceased's lifetime. The bad news is that estates often hold assets for months or years before sale, during which time values can rise again. This guide covers the essential CGT rules for personal representatives.

The CGT Uplift: Starting From Probate Value

Under section 62 of the Taxation of Chargeable Gains Act 1992, assets passing from a deceased person to their personal representatives (executors or administrators) are deemed to be acquired at their market value on the date of death. This is the CGT "uplift" or "free step-up."

The practical effect is that any gain accumulated on an asset during the deceased's lifetime is extinguished for CGT purposes. For example:

• The deceased bought shares in 2005 for £10,000. At the date of death, they were worth £50,000. The estate acquires those shares at a cost of £50,000 for CGT purposes. If the executor sells them six months later for £55,000, the CGT gain is only £5,000 — not £45,000
• Equally, if the executor sells the shares for £48,000 — a fall from the probate value — the estate has made a CGT loss of £2,000 that can be offset against other gains in the same or future years of administration

The probate value used for CGT purposes should be the same figure as the value declared on the IHT return (form IHT400 or IHT205). HMRC can and does compare these figures, so consistency between the IHT and CGT positions is important.

The Estate's Annual CGT Exemption

Individuals are entitled to an annual CGT exemption (currently £3,000 for 2024/25). Personal representatives — executors and administrators — have a lower annual exemption of £1,500per tax year during the administration period.

This exemption is available in the tax year of death and in the following two tax years, so:

• Year of death: £1,500 exemption
• First full tax year after death: £1,500 exemption
• Second full tax year after death: £1,500 exemption
• Thereafter: no further annual exemption for personal representatives

Any gains below the annual exemption threshold are free of CGT. For estates that take two or three years to administer — which is not uncommon where there are disputes, complex assets, or slow property sales — the exemption is refreshed each year, potentially sheltering up to £4,500 of gains tax-free over the administration period.

Like individuals, the estate cannot carry forward an unused annual exemption from one tax year to the next. If the estate has gains below £1,500 in a given year, the unused portion is lost.

How to Report CGT: SA900 and the Online Property Service

CGT gains made by an estate during administration are reported to HMRC through the SA900 Trust and Estate Tax Return. This is a separate return from the individual's final self-assessment return for the year of death.

The SA900 must be filed if:

• The estate has chargeable gains (after the annual exemption) in any tax year of administration
• The estate has income (such as rental income or dividends) during administration that exceeds HMRC's informal concession limits

The SA900 deadline is 31 January following the tax year in question for online filing (or 31 October for paper filing). The return covers the period from 6 April to 5 April, so gains made across two different tax years are reported in the respective returns.

Residential property: the 60-day reporting rule

Where the estate sells a UK residential property that was not the deceased's main residence (or has not been used as the main residence of a beneficiary), the CGT must be reported and paid within 60 days of the completion date using HMRC's UK Property Reporting Service (a separate online portal from self-assessment).

This 60-day rule applies even if the total gain falls below the annual exemption. The executor must register for a Capital Gains Tax on UK Property Account on the HMRC website, report the disposal, and pay any tax due within 60 days. The gain is then also included on the SA900 for the relevant tax year.

CGT Rates for Estates

Personal representatives pay CGT at the following rates:

• Residential property: 24% on gains (from 30 October 2024, following the Autumn Budget 2024 reduction from the previous 28%)
• Other assets (shares, chattels, commercial property): 20% on gains (also unchanged from recent years for trusts and personal representatives)

Personal representatives do not benefit from the lower CGT rates available to basic rate taxpayers (18% for residential property, 10% for other assets). The estate pays at the higher rate regardless of the size of the gain.

This is one reason why executors sometimes consider transferring assets to beneficiaries before sale, rather than selling through the estate. A beneficiary who is a basic rate taxpayer can sell at the lower rate — potentially saving significant tax on large gains. However, this strategy requires the asset to be formally appropriated to the beneficiary first, and professional advice should be taken before proceeding.

When Assets Fall in Value: Capital Losses in an Estate

Not all estate assets increase in value after death. If an asset is sold for less than its probate value, the estate has made a capital loss. Capital losses within an estate can be:

• Offset against capital gains made within the same tax year of administration — losses reduce the net chargeable gain before the annual exemption is applied
• Carried forward to offset against gains in future years of administration — losses do not expire during the administration period
• Used to reduce the IHT bill in certain circumstances: where quoted shares or land is sold within 12 months of death for less than the probate value, a claim can be made to substitute the sale price for the probate value in the IHT calculation (Inheritance Tax Act 1984, sections 178 and 190 respectively)

The IHT loss relief claim is particularly valuable where a portfolio of shares has fallen since death. It effectively refunds IHT paid on a value that was never realised. The claim must be made within four years of the date of death.

Practical CGT Planning During Administration

Executors have some limited scope to manage CGT liabilities during the administration period:

• Spread sales across tax years to utilise the £1,500 annual exemption in each year — for example, sell some shares in March and the remainder in April (the next tax year) to use two years' exemptions
• Appropriate assets to beneficiaries before sale— the transfer from estate to beneficiary is not itself a CGT event, and the beneficiary takes the asset at the same probate value. If the beneficiary then sells, they use their own personal annual exemption (£3,000) and potentially pay at a lower rate
• Offset losses against gains — if the estate has sold some assets at a loss, ensure these are netted off against any gains before calculating the CGT bill

Any CGT planning should be discussed with a tax adviser, as the interaction between CGT, IHT, and income tax on estates can be complex. The overall objective is to minimise the total tax burden on the estate and maximise the amount available for distribution to beneficiaries.