Inheritance Tax gets all the attention when someone dies owning property, but it is not the only tax in play. Once the estate is settled and the property passes to executors or beneficiaries, a second, separate question sits waiting: what happens when it is eventually sold? The answer turns almost entirely on one number — the value at the date of death — and getting that number right at the time matters more than most families realise.
The rebasing rule: a fresh start on death
Capital Gains Tax is a tax on growth in value, not on the asset itself. When someone dies owning a property, there is no CGT charge on death — instead, the property's base cost is uplifted, or "rebased", to its market value at the date of death, as reported for probate. Any gain that built up during the deceased's ownership, sometimes over decades, simply disappears for CGT purposes. Whoever inherits the property — the estate initially, then the beneficiary once it is transferred to them — only pays CGT on growth from that date-of-death value onwards.
This is the single most valuable feature of the inheritance route for CGT, and it is why the interaction with Inheritance Tax matters so much: holding an appreciating property until death clears the CGT that would otherwise be due on a lifetime sale or gift, at the cost of exposing the full value to IHT at up to 40%. We cover that trade-off in more depth in our guide to Inheritance Tax planning for landlords.
Who actually pays: the estate or the beneficiary?
The answer depends on when the sale happens. If the personal representatives (executors or administrators) sell the property during the administration of the estate, before it is transferred to a beneficiary, the estate is the one that owns the asset and reports any CGT. If instead the property is transferred (assented) to a beneficiary and they sell it later, the CGT is theirs to report, using the same date-of-death value as their base cost — the transfer from estate to beneficiary is not itself a disposal that triggers CGT.
Personal representatives are entitled to the full individual annual exempt amount in the tax year of death and the following two tax years, after which the estate's own exemption drops to nil. Where a sale is likely to produce a taxable gain and there is some flexibility over timing, this window is worth factoring into the decision about when to sell, rather than letting the administration simply run its course.
Multiple beneficiaries and part-shares
Where a property is inherited jointly by several beneficiaries — siblings inheriting the family home in equal shares is the common case — each beneficiary's CGT position is worked out separately on their own share, using their own share of the date-of-death value as base cost. If one sibling wants to sell and buy out the others, or the property is sold to a third party and the proceeds split, each beneficiary's own annual exempt amount and marginal tax rate apply to their own slice of the gain, and their circumstances (whether they occupy the property, their other income, whether they are a higher-rate taxpayer) can produce quite different outcomes from the same sale.
The probate valuation tension
Because the date-of-death value sets the CGT base cost, there is an obvious tension baked into the process: a lower probate valuation reduces Inheritance Tax on the estate but increases the eventual capital gain (and CGT) on a later sale, while a higher valuation does the reverse. HMRC is alive to this and can query a probate valuation that looks understated — particularly where a property sells, sometimes not long after death, for materially more than the value reported for probate. A sale soon after death for a higher figure is not automatically a problem, since property values move and a probate valuation is necessarily a snapshot, but a wide, unexplained gap invites a challenge to the original figure, which can unwind the intended IHT saving as well as the CGT position. A defensible, professionally obtained valuation at the point of probate — not a desktop estimate — protects both sides of that equation.
The 60-day reporting rule still applies
If the estate or a UK-resident beneficiary sells a UK residential property with a taxable gain, the same 60-day CGT reporting and payment deadline that applies to any other residential property disposal applies here too — we cover the mechanics in full in our guide to Capital Gains Tax on a property sale. Estate administration can move slowly, and it is easy for this deadline to be missed simply because nobody in the family realised it existed; the penalty and interest exposure is the same as on any other late filing.
Renting it out before selling
It is common for an inherited property to sit let, rather than sold immediately, while probate concludes or a family decides what to do with it. Rental income during that period is taxable in the normal way — on the estate if it arises before the property is assented to a beneficiary, or on the beneficiary once it is theirs — with the usual deductible expenses available. If the letting is informal or undeclared, the same disclosure route covered in our guide to the Let Property Campaign applies.
Private Residence Relief for a beneficiary who moves in
If a beneficiary moves into the inherited property and makes it their only or main home before eventually selling, Private Residence Relief can shelter the period of genuine occupation from CGT in the normal way, on top of the rebasing already achieved on inheritance. The relief is calculated on the usual occupation-based test, so a beneficiary who inherits, lets the property for a period, and only later moves in will only get relief for the period of actual residence (plus the final period of ownership), not the whole holding period.
Deeds of variation
Where the way an estate has been left is not tax-efficient, a deed of variation executed within two years of death can redirect how assets pass as if the deceased had left them that way from the outset, for both IHT and CGT purposes. It does not create a fresh rebasing event of its own — the date-of-death value stands regardless of who ultimately receives the asset — but it can change who inherits, and therefore whose annual exempt amount, tax rate and future plans for the property are relevant to the eventual sale.
What this means in practice
The practical checklist for a family dealing with an inherited property is short but easy to get wrong under pressure: get a proper, evidenced valuation at the point of probate rather than a rough figure; work out early whether the estate or an individual beneficiary will be the one selling, since the annual exempt amount and reporting obligations sit with whoever owns the asset at the point of sale; keep the 60-day clock in mind the moment contracts exchange; and if the property is let in the meantime, make sure the income is properly declared. None of this is complicated in isolation, but estate administration already carries enough to manage without a CGT deadline or valuation dispute adding to it.
Common questions
Do you pay Capital Gains Tax on an inherited property?
Not immediately. Inheriting a property is not a disposal, and Inheritance Tax (if any) is dealt with separately through the estate. Capital Gains Tax only becomes relevant if and when the property is later sold, and it is calculated on the growth in value from the date of death, not on the full value of the property.
What is the base cost of an inherited property for CGT?
The base cost is the property's market value at the date of death, as agreed or reported for probate. This rebasing wipes out any capital gain that built up during the deceased's ownership, so only growth in value from the date of death to the date of the later sale is taxable.
Do executors get a Capital Gains Tax allowance?
Yes. Personal representatives are entitled to the full individual annual exempt amount for the tax year of death and the following two tax years, after which the estate's exemption drops to nil. If the property is likely to be sold at a gain, this window can be worth planning the timing of a sale around.
What if the property sells for more than the probate value shortly after death?
A sale for materially more than the reported probate value, especially soon after death, can prompt HMRC to query whether the original probate valuation was too low — which matters for Inheritance Tax as well as the size of the later Capital Gains Tax base cost. A defensible, professionally supported valuation at the point of probate protects both positions.
Kieran Holsgrove is a Director and Co-Founder of Grafene Accounting, the property tax specialist firm based in Liverpool. He advises property developers, investors and landlords across Merseyside, Greater Manchester, Lancashire and Cheshire on tax structuring, developer VAT, SDLT and the long-view decisions that compound over the life of a portfolio.
This article is general information, not personal tax advice, and tax rules change. Your own position depends on facts we cannot see from here — please take advice before acting on anything above.