Inheriting a property can be a bittersweet experience — while it may provide financial benefits, it also brings about questions around tax obligations and legal responsibilities.
One of the most common questions in the UK is: if you inherit a house and sell it, is it taxable? The answer depends on several factors including the value of the property, your income bracket, and when the sale takes place.
This guide explores everything you need to know about tax implications when selling an inherited home, focusing on Capital Gains Tax (CGT), inheritance tax, deductions, and HMRC reporting requirements.
What Taxes Apply When You Inherit a Property in the UK?
When inheriting a property in the UK, it’s important to understand which taxes may apply. Two main taxes are relevant:
Inheritance Tax (IHT)
Inheritance Tax is charged on the value of a deceased person’s estate above a certain threshold. As of the 2024/25 tax year:
- The nil-rate band is £325,000 per person.
- An additional residence nil-rate band of £175,000 may apply if the home is passed to a direct descendant.
- Inheritance Tax is typically charged at 40% on the value above these thresholds.
However, the estate usually pays this tax before any assets, such as a property, are transferred to beneficiaries. If you inherit a property, you don’t personally pay Inheritance Tax unless the estate arrangements require it.
Capital Gains Tax (CGT)
Capital Gains Tax is only relevant when the inherited property is later sold and has increased in value since the date of inheritance. This is when tax becomes the responsibility of the beneficiary who sells the asset.
The valuation at the date of death, known as the probate value, is critical. It forms the basis for calculating any profit when the property is sold in the future. If the sale price exceeds this valuation (after allowable deductions), CGT may apply.
Is Capital Gains Tax Payable When You Sell an Inherited Property?
You will not pay CGT when you inherit the property. However, if the market value rises after the date of inheritance and you choose to sell it, any profit made could attract CGT.
The gain is calculated by taking the final selling price and subtracting the probate value and any deductible expenses. If the resulting figure is positive and exceeds the CGT tax-free allowance, tax will be due.
Here are situations that affect whether CGT is payable:
- Selling the property immediately after inheritance and at the same probate value results in no gain and therefore no CGT.
- Delaying the sale for several years during which property value increases may result in a higher gain and potential tax liability.
- If the property is sold at a loss, CGT is not payable, and the loss may be used to offset other gains.
It is also important to understand how CGT interacts with your income tax band, as this influences the rate you pay.
How Is the Capital Gain Calculated on an Inherited Property?
Calculating capital gains involves several steps and requires accurate documentation. The basic formula is:
Capital Gain = Sale Price – Probate Value – Allowable Costs – CGT Allowance
Allowable costs reduce the gain and therefore the amount of tax owed. These may include fees incurred when inheriting and selling the property, and the cost of capital improvements.
Here’s a breakdown of a real-world scenario:
| Detail | Amount |
| Probate value of the property | £200,000 |
| Sale price of the property | £300,000 |
| Legal and estate agent fees | £7,000 |
| Cost of major improvements | £10,000 |
| Capital Gains Tax allowance | £3,000 |
| Taxable gain | £80,000 |
In this scenario, £80,000 is the taxable amount after deducting legitimate costs and the personal allowance. Accurate records such as solicitor invoices, improvement receipts, and valuation reports must be retained to support your claim.
What Expenses Can Be Deducted from Capital Gains Tax?
When you sell an inherited property in the UK and make a profit, Capital Gains Tax (CGT) may be payable on that gain. Fortunately, HMRC allows you to deduct certain legitimate expenses from the total gain before calculating your tax liability. These deductions can significantly reduce the amount of CGT owed and are a crucial part of tax planning.
Categories of Deductible Expenses
There are three main types of expenses that may be deducted from your gain: acquisition costs, enhancement (improvement) costs, and disposal costs. Each of these categories must meet HMRC’s criteria and be supported by documentation, such as invoices, contracts, or receipts.
Acquisition Costs
Although you inherit the property rather than purchase it, there may still be some costs associated with acquiring legal ownership. These can include:
- Legal fees paid to a solicitor for handling the probate process
- Valuation fees if a professional surveyor was hired to assess the market value of the property at the time of death
- Costs incurred during the transfer of ownership, including Land Registry charges (if applicable)
These expenses are considered part of your acquisition cost and can be deducted from your total gain when calculating CGT.
Capital Improvement Costs
Capital improvement costs are among the most significant deductions you can claim. These refer to any works that have permanently enhanced the property’s value or extended its life. The key is that the improvements must be structural or substantial and go beyond routine maintenance.
Examples include:
- Installing a new kitchen or bathroom, particularly if it’s a significant upgrade from what existed previously
- Building an extension, conservatory, or converting a loft into living space
- Fitting a new central heating system or rewiring the entire property
- Replacing single glazing with double glazing for energy efficiency
However, it is important to understand what doesn’t qualify:
- General repairs, such as repainting walls or fixing leaks
- Like-for-like replacements, e.g. replacing an old carpet with a similar one
- Cosmetic upgrades that do not materially increase the property’s value
The improvement must add measurable value to the home and not simply restore it to its previous condition. Also, you must retain all receipts and invoices as HMRC may request evidence of these costs in case of a review or audit.
Selling (Disposal) Costs
Selling a property also incurs costs, which can be deducted when calculating your gain. These include:
- Estate agent fees, which are usually a percentage of the selling price
- Solicitor fees for handling the conveyancing process
- Surveyor fees if required as part of the sales process
- Advertising costs for promoting the sale, such as premium listings
These are considered part of the disposal costs, and like other deductions, they must be supported with documentation.
Importance of Documentation
A key part of claiming these deductions successfully is having proper documentation:
- Keep itemised invoices and receipts
- Ensure all work done includes a clear description of the service or improvement
- Retain a timeline of when works were carried out, as this can help demonstrate how and when improvements affected the property’s value
It is also beneficial to have a formal property valuation report at the time of inheritance and potentially another valuation after improvements have been made. This allows you to accurately calculate the property’s increase in value and justify the deductions more clearly.
Strategic Use of Deductions
Using these deductions strategically can help you remain within your Capital Gains Tax-free allowance (£3,000 per person for the 2024–2025 tax year). In some cases, combining allowable expenses with your personal CGT allowance may eliminate the tax liability altogether.
For example:
- If your total gain before deductions is £25,000, and you have £10,000 in allowable expenses, the gain becomes £15,000.
- Subtracting the £3,000 CGT allowance leaves £12,000 subject to tax.
- If you’re a basic-rate taxpayer, the CGT owed would be £2,160 (18% of £12,000).
The larger your allowable deductions, the lower your CGT bill. Couples who own the property jointly can double the CGT allowance and claim respective expenses, offering further potential for tax reduction.
Final Notes on Eligibility
Not every cost you incur during ownership will qualify as deductible. To ensure compliance:
- Only deduct costs related directly to the acquisition, improvement, or sale
- Keep a record of communications with professionals who carried out or advised on the work
- If unsure, consult a chartered tax adviser or solicitor for clarity
Understanding and applying these rules correctly can result in substantial tax savings and help you avoid issues with HMRC down the line.
How Much Capital Gains Tax Will You Have to Pay?
The amount of CGT owed depends on your total income, as your tax rate for CGT is linked to your income tax band. There are two CGT bands for residential property:
- Basic rate taxpayers (income between £12,571 and £50,270): 18%
- Higher or additional rate taxpayers (income over £50,270): 24% (reduced from 28% in April 2024)
Here’s a comparative table based on the earlier example where the gain is £80,000:
| Taxpayer Type | CGT Rate | CGT Payable (on £80,000) |
| Basic Rate | 18% | £14,400 |
| Higher/Additional Rate | 24% | £19,200 |
If a property is jointly owned by a couple, both individuals can apply their annual tax-free allowance of £3,000 each, reducing the total taxable gain by £6,000.
It’s important to include any other capital gains you’ve made in the tax year, as this can affect your total CGT liability. Losses from other sales may also be offset against your gain to lower the taxable amount.
When and How Should You Report and Pay Capital Gains Tax?
As of the current rules, the sale of a residential property that results in a CGT liability must be reported and paid within 60 days of the completion date. This applies to UK residents.
The process includes:
- Calculating your gain using all documentation
- Creating or logging into your Government Gateway account
- Using HMRC’s Capital Gains Tax on UK property service
- Paying any tax due within the deadline
Failure to report and pay within the 60-day window could result in interest charges and late payment penalties.
Essential documents required when reporting CGT include:
- Probate valuation
- Sale completion statement
- Receipts for legal, estate agent, and improvement costs
- Proof of your annual CGT allowance usage
The CGT reporting service is available on HMRC’s website and guides you step-by-step through the process.
Are There Any Ways to Reduce the Capital Gains Tax on Inherited Property?
Capital Gains Tax can sometimes be reduced or avoided altogether with good planning. Some of the strategies include:
- Transferring ownership to a spouse before selling. Spouses and civil partners can transfer assets between them tax-free, allowing for the doubling of the annual CGT allowance.
- Selling during a low-income year, potentially keeping your income within the basic tax band and securing the lower CGT rate of 18%.
- Utilising capital losses from other investments to offset your gains on the inherited property.
- Using the property as your main residence for a period. If you live in the property and then sell it, you may qualify for Private Residence Relief, exempting some or all of the gain.
Tax planning advice from a qualified professional can help structure the sale in the most tax-efficient manner. In certain cases, it may be worth delaying the sale or adjusting ownership structure to reduce exposure to CGT.
What Should You Do Before Selling an Inherited House?
Before listing an inherited property for sale, several steps should be followed to ensure compliance and maximise value:
- Obtain the Grant of Probate, the legal confirmation that you can manage and sell the estate’s assets.
- Get the property valued at the date of death by a qualified surveyor or estate agent.
- Check for any debts or mortgages attached to the property, as these need to be settled prior to sale.
- Register the property with HM Land Registry under your name if not already completed.
- Consult with a solicitor or tax adviser to clarify potential tax liabilities and any planning opportunities.
Doing this preparation work ensures that the sales process runs smoothly and reduces the risk of future disputes or tax issues.
Conclusion
Selling an inherited property in the UK can trigger Capital Gains Tax if its value has increased since the date of inheritance. Understanding how the gain is calculated, what deductions are allowed, and when to report to HMRC is essential to avoid penalties.
By keeping accurate records, applying legal allowances, and seeking professional advice, you can manage your tax liability effectively. Proper planning can help ensure you make the most of your inherited asset while staying compliant with UK tax laws.
FAQs About Tax on Selling an Inherited Property in the UK
What is the difference between inheritance tax and capital gains tax?
Inheritance tax is applied to the deceased person’s estate above a certain threshold, while capital gains tax is applied on any profit made when selling the inherited property.
Can I avoid paying capital gains tax by living in the inherited property?
You may qualify for Private Residence Relief if the property becomes your main residence. However, conditions apply and the period of residence matters.
Do I need to get the property valued when I inherit it?
Yes. A probate valuation at the time of inheritance is essential for calculating future capital gains if you sell.
Is there a time limit to sell an inherited property to avoid capital gains tax?
There’s no specific deadline, but the longer you wait, the more the property may appreciate, potentially increasing your CGT liability.
What if multiple people inherit the property?
Each beneficiary’s CGT is calculated based on their share of the gain. They can individually use their tax-free allowances.
Can I deduct inheritance tax already paid from capital gains tax?
No. Inheritance tax and CGT are separate taxes and cannot be offset against one another.
What happens if I inherit a property abroad and sell it?
You may be liable for CGT in both the UK and the country where the property is located, depending on international tax treaties.
