TL;DR: Inherited property in the UK is usually free from capital gains tax (CGT) when you sell it, as the property value resets to its value on the date of death. However, if the property was rented out or not your main home, CGT may apply on profits made after inheritance. Selling quickly to a cash buyer can simplify the process.

Capital Gains Tax on Inherited Property UK Explained

Inheriting a property is often bittersweet. While you gain an asset, you also face questions about taxes and selling. One key question is: will you owe capital gains tax? The good news is that inherited property in the UK generally gets a tax break. We’ll explain how inherited property is taxed, when you might owe CGT, and how to handle the sale smartly.

What Happens to Capital Gains Tax When You Inherit a Property?

When you inherit a property, the value “resets” for tax purposes on the date of death. This means if your parent bought a house for £150,000 and it’s worth £350,000 when they pass away, you don’t pay capital gains tax on that £200,000 gain. The new value (£350,000) becomes your “base cost” for calculating future tax.

This is called “stepped-up basis” and it’s a major tax advantage. You only pay CGT on any increase in value from the date you inherited it. For example, if you sell it two years later for £375,000, you’d only owe CGT on the £25,000 gain, not the original £200,000.

Do You Pay Capital Gains Tax When You Sell an Inherited Property?

It depends on the type of property and whether you lived in it. If the inherited property was the deceased’s main residence, there’s no CGT to pay when you sell it, even if the value has risen. This is because main residences get “principal private residence relief” (PPR).

However, if the property wasn’t their main home, or if it was a buy-to-let property, CGT will apply. You’ll only pay tax on gains made after you inherited it. The tax rate is 20% for higher earners or 10% for basic rate taxpayers. You also get an annual exemption (£3,000 for the 2024-2025 tax year) before CGT kicks in.

What If the Inherited Property Was Rented Out?

If the deceased rented out the property before death, it was a buy-to-let investment. When you inherit it, the stepped-up basis still applies. But if you then sell it, you will owe capital gains tax on any profit after the date of death.

You might also owe income tax on rental income if you continue to let it. If this is too complicated, selling for a fast cash sale can help you move on quickly without managing a rental property. Many inherited property owners find that selling swiftly is simpler than keeping it as an investment.

How Long Do You Have Before Capital Gains Tax Kicks In?

There’s no time limit on when you must sell an inherited property to avoid CGT. You can hold it as long as you want. However, the longer you keep it, the more value it might gain, and the more CGT you could owe on future sales.

The clock for CGT starts on the date of inheritance, not the date of sale. So if you inherit a property on 1 January and sell it on 31 December, you owe CGT on 11 months of growth (if it applies). Many people choose to sell within the first year or two to keep potential CGT liability low and to avoid the costs of maintaining an inherited property.

What Costs Can You Deduct From Capital Gains Tax?

You can reduce your CGT bill by deducting certain costs from the gain. These include estate agent fees, surveyor costs, legal fees for the sale, and any improvements you made to the property (like a new roof or extension). You cannot deduct general maintenance costs or costs to fix existing damage.

Keep receipts for all improvements and professional services. If you spent £20,000 on improvements and the gain is £50,000, your taxable gain drops to £30,000. This can make a real difference to your tax bill.

Should You Use Your Main Residence Exemption on an Inherited Property?

If you inherited a second property and then made it your main home, you might be able to claim main residence relief. This rule is complex and depends on how long you lived in it and timing changes. You have two years from the date of death to move in and potentially claim relief.

This is a specialist area. If you’re unsure, speak to an accountant or tax advisor. They can tell you if you qualify. Get a free offer from PropSell and we can explain your options, including whether selling is the best move for your situation.

What Are Your Options for Selling an Inherited Property?

You have several ways to sell. You can use a traditional estate agent, which takes 1 to 3 months and involves viewings. You can sell at auction, which is fast but often sells for below market value. Or you can sell to a cash buyer, which is the quickest option and removes hassle.

Cash buyers like those on PropSell buy properties as-is, with no viewings or surveys. They close deals in days or weeks. This means you avoid months of holding costs, maintenance, and uncertainty. For many inherited property owners, especially those facing a CGT bill, this speed can offset any small difference in final price.

Conclusion

Inherited property in the UK gets a major tax advantage: the value resets at the date of death, so you don’t owe CGT on gains made before you inherited it. If the property was the deceased’s main home, there’s no CGT when you sell. But if it was an investment property or a second home, you’ll owe 10% to 20% CGT on gains made after death.

The best move is to act fast. Holding an inherited property costs money through maintenance, council tax, and insurance. Selling quickly to a cash buyer removes stress and complexity. PropSell is FREE for all sellers and can match you with buyers ready to complete fast. Get a free offer today and take the guesswork out of selling your inherited property.

FAQ

Do I have to pay inheritance tax and capital gains tax on the same inherited property? No. You may owe inheritance tax on the estate as a whole (if it’s over £325,000), but not on the property value itself. You only owe CGT if you sell the property later and it has gained value since the date of death. These are two separate taxes.

What if I inherited a property with my sibling? Do we each pay separate CGT? Yes. You and your sibling own a share of the property. When you each sell your share, you each calculate CGT on your share of the gain. You’d each get an annual CGT exemption too, so you might each avoid tax if the gain is small.

Can I claim CGT relief if I lived in the inherited property for part of the time I owned it? Possibly. If you made the inherited property your main home and lived there for at least part of your ownership, you may be able to claim partial main residence relief. Timing and rules are strict, so speak to a tax professional to check if you qualify.

Do I pay CGT if I sell an inherited property within the first year? You only pay CGT if the property has gained value since the date of death and it’s not covered by main residence relief. How soon you sell doesn’t change whether you owe tax, but selling fast can limit the time the property gains value.

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