Capital Gains Tax on Inherited Property: Probate Valuation & Rules

Inheriting a property from a deceased relative is a common family milestone, but it brings immediate exposure to the UK tax system. A frequent source of confusion is whether you owe tax when you inherit the property, or only when you eventually sell it. While Inheritance Tax (IHT) is a concern for the deceased’s estate, the beneficiary faces a **Capital Gains Tax (CGT)** exposure if the property increases in value between the date of death and the date of sale. Fortunately, the “probate valuation uplift” resets the cost basis of the property, providing a tax shelter for previous growth. In this comprehensive guide, we explain how inherited property is valued, walk through a step-by-step CGT calculation, and outline how to reduce your liability.

1. Inheritance Tax vs. Capital Gains Tax

It is critical to distinguish between these two taxes because they are paid by different entities at different stages of the process:

• Inheritance Tax (IHT): Assessed on the overall value of the deceased’s estate (including the property) at the date of death. It is paid by the estate’s executors using estate funds before assets are distributed to beneficiaries. As the beneficiary, **you do not pay IHT** when you receive the property.
• Capital Gains Tax (CGT): Assessed on any increase in the property’s value **after the date of death**. If you inherit a property and sell it later for more than its probate valuation, you (the beneficiary) must pay CGT on that specific growth.

To check how these properties are taxed and calculate potential liabilities, use our Property Capital Gains Tax Calculator.

2. The Probate Valuation Uplift (The Cost Basis Reset)

Normally, when you sell an asset, your cost basis is what you originally paid for it. However, under UK tax law, if you inherit a property, you receive a **probate valuation uplift**. This means your cost basis is reset to the property’s **Open Market Value at the date of death**, as agreed during the probate process.

For example, if your relative bought a house in 1995 for £50,000, and they pass away in 2025 when the house is valued at £250,000, the £200,000 of lifetime growth is entirely wiped out for CGT purposes. Your cost basis for any future sale starts at **£250,000**.

3. Step-by-Step Mathematical Example: Inherited Property Sale

Let’s run a calculation for a beneficiary who inherits a buy-to-let house. The probate valuation at the date of death is **£250,000**. The beneficiary sells the property 18 months later for **£280,000**:

Step 1: Calculate the Gross Capital Gain

• Sale Price: £280,000
• Probate Cost Basis: £250,000
• Gross Gain: £280,000 − £250,000 = £30,000

Step 2: Deduct Allowable Setup and Sale Expenses

• Solicitor estate conveyancing fees: £1,500
• Estate agent selling fee (1% + VAT): £3,360
• Total Expenses: £1,500 + £3,360 = £4,860

Step 3: Calculate Net Capital Gain

• Net Gain: £30,000 − £4,860 = £25,140

Step 4: Deduct the Annual Exemption and Compute Tax

The beneficiary applies their 2026/27 annual CGT allowance of **£3,000** (assuming a higher-rate taxpayer subject to the 24% residential property rate):

• Taxable Gain: £25,140 − £3,000 = £22,140
• Tax Charge (24% CGT): £22,140 × 24% = £5,313.60

4. Strategies to Reduce Inherited Property CGT

If you inherit a property and want to minimize tax, consider these strategies:

• Make it Your Primary Residence (PRR): If you move into the property as your primary home, you can claim Private Residence Relief for the period of time you live there, shielding that portion of the growth from CGT.
• Sell Immediately: If you sell the property quickly after probate is granted for its probate value, there will be £0 gain, and thus £0 CGT will be payable.
• Transfer to a Spouse Before Sale: If you are married, you can transfer a share of the property to your partner before selling it, allowing both of you to use your separate £3,000 allowances, reducing the taxable gain by £6,000.

5. Frequently Asked Questions

Do I pay CGT immediately when I inherit a property?

No. You only pay Capital Gains Tax when you eventually sell, gift, or transfer the property. The act of inheriting it does not trigger CGT.

What is the cost basis for inherited property?

Your cost basis is the Open Market Value of the property at the date of the deceased’s death, as declared on the probate documentation.

Do I have to pay Stamp Duty when inheriting a house?

No. There is no Stamp Duty Land Tax (SDLT) payable on properties inherited under a will or through intestacy rules.

Can I live in the inherited house to avoid CGT?

Yes. If you occupy the house as your primary home, you qualify for Private Residence Relief (PRR) for that period, reducing or eliminating the CGT due when you eventually sell it.

What happens if we sell the house for less than the probate value?

If you sell the property for less than the probate valuation, you make a capital loss. You can register this loss with HMRC to offset against other capital gains (like share sales).

How does HMRC check the probate valuation?

HMRC’s District Valuer Services (DVS) routinely audits probate valuations, cross-checking property details against local sold databases to ensure the valuation at the date of death was accurate.

What is the 60-day reporting window for inherited property?

If you sell the inherited property and owe CGT, you must report the sale and pay the tax to HMRC within 60 days of the legal completion date of the sale.

Can we claim the deceased person’s CGT allowance?

No. You cannot use the deceased’s annual exempt amount. Only the beneficiary’s own £3,000 allowance (or the executors’ allowance during the administration period) can be applied.

Statutory & Legislative References

• Taxation of Chargeable Gains Act 1992 – Section 62: Statutory rules detailing the valuation of assets at the date of death and the probate uplift reset.
• Administration of Estates Act 1925: Legal framework governing the distribution of estate assets to beneficiaries.
• Finance Act 2020: Directives enacting the 60-day property disposal reporting rules.