Selling an Inherited Property: Capital Gains Tax and Probate Value

When you sell an inherited property, Capital Gains Tax is charged on the increase in value since the date of death, not since the deceased bought it. The probate value becomes your base cost, so a house valued at £280,000 for probate and sold for £330,000 produces a £50,000 gain before costs and allowances — taxed at 18% or 24% depending on your other income.

Inheritance Tax and Capital Gains Tax are two separate charges at two separate moments: IHT is settled by the estate on the value at death, CGT is paid by whoever sells afterwards on the growth after death. Getting the probate valuation right is what links the two.

Key points

• Your CGT base cost is the property's market value at the date of death (the probate or, in Scotland, confirmation value).
• Residential property gains are taxed at 18% within your remaining basic-rate band and 24% above it, after the £3,000 annual exempt amount.
• Selling at or near the probate value soon after death usually means little or no CGT — a low probate value saves IHT at 40% but increases any later CGT.
• Who sells matters: an estate pays a flat 24% and gets one £3,000 allowance, while beneficiaries each get their own allowance and their own rates.
• A UK residential property disposal must be reported and the tax paid within 60 days of completion.

Base cost = probate value

For CGT purposes, a person inheriting an asset is treated as acquiring it at its market value on the date of death. The deceased's own gains are wiped out — there is no CGT on death itself. So if your father bought the house in 1986 for £32,000 and it was worth £280,000 when he died, the £248,000 of growth during his lifetime is never taxed as a capital gain. Only growth after the date of death is in scope.

That makes the date-of-death figure the single most important number in the whole process.

"Ascertained" versus estimated values

Where Inheritance Tax is payable and the value of the property has been agreed with HMRC, that figure is "ascertained" and both the estate and the beneficiaries are bound by it for CGT. Where no IHT was due — for example the estate fell within the £325,000 nil-rate band, or the residence nil-rate band of £175,000 took it out of charge — the figure on the probate forms has not been agreed with anyone. HMRC can, and does, challenge an optimistic low figure when the property later sells for much more.

This is why a written valuation from a surveyor or at least two or three dated estate agent appraisals at the time of death is worth keeping. If the property is in poor condition, needs rewiring, or is tenanted, say so in the valuation: that is what justifies a lower number.

There is a genuine tension here. A lower probate value reduces Inheritance Tax at 40% but raises the later capital gain. A higher probate value does the opposite. In a taxable estate, £10,000 of extra probate value costs £4,000 in IHT but saves at most £2,400 in CGT — so inflating the value is rarely sensible. In an estate well within the nil-rate bands, extra value costs nothing in IHT and reduces CGT pound for pound. You can model the IHT side with the Inheritance Tax calculator, and if you are dealing with a second death and transferred allowances, see the guide to Inheritance Tax when the second parent dies.

What you can deduct from the gain

• Estate agent's commission and marketing costs on the sale.
• Conveyancing and legal fees on the sale.
• Capital improvements made after death that are still reflected in the property — an extension, a new kitchen where there was none, central heating installed for the first time.
• Personal representatives can also deduct a proportion of the costs of establishing title to the estate's assets, under an HMRC scale.

You cannot deduct repairs and redecoration, mortgage interest, insurance, council tax or utilities during the period the house stands empty. Those are either revenue costs or simply not allowable.

Sell quickly vs hold

If the property sells within a few months at broadly the probate value, the gain is usually small or negative once selling costs are taken off. Hold it for years in a rising market and the gain grows — and there is no relief to shelter it unless you actually live there as your only or main home. Inheriting a house gives you no automatic exemption; Private Residence Relief only covers periods of genuine occupation as your main residence.

Worked example: two siblings, a £50,000 rise

Probate value £280,000. Sold 14 months later for £330,000. Agent's fee £4,950, legal fees £1,400.

• Gross gain: £330,000 − £280,000 = £50,000
• Less selling costs: £50,000 − £6,350 = £43,650
• Split equally between two beneficiaries: £21,825 each
• Each deducts the £3,000 annual exempt amount: £18,825 taxable each

Sibling A earns £35,000 from employment. Taxable income after the £12,570 Personal Allowance is £22,430, leaving £37,700 − £22,430 = £15,270 of basic-rate band unused.

• £15,270 × 18% = £2,748.60
• £18,825 − £15,270 = £3,555 × 24% = £853.20
• Total: £3,601.80

Sibling B earns £70,000, so the whole gain falls above the basic-rate limit: £18,825 × 24% = £4,518.

Combined CGT: £8,119.80 on a £50,000 rise — an effective rate of about 16%.

Scotland and Wales

Capital Gains Tax is not devolved. The 18% and 24% rates and the £37,700 basic-rate band used to split the gain are the same across the UK. Scottish taxpayers use the UK basic-rate limit for this calculation even though their income is taxed at Scottish rates — the two systems do not line up, so it is worth running the numbers rather than assuming. In Scotland the equivalent of probate is confirmation, and the confirmation value does the same job as the probate value.

Selling during probate

Personal representatives (executors or administrators) can sell the property inside the estate. If they do:

• The estate is entitled to the full £3,000 annual exempt amount for the tax year of death and the two tax years that follow.
• The estate pays 24% on residential property gains — there is no 18% band for personal representatives.
• The beneficiaries' own allowances and tax rates are irrelevant.

Appropriating the property before sale

Personal representatives can instead appropriate the property (or shares in it) to the beneficiaries before contracts are exchanged, so that the beneficiaries make the disposal. The sale still completes through the same conveyancer, but the gain lands on the individuals.

Using the figures above, compare the two routes:

The difference here is £1,636.20, and it would be larger with more beneficiaries or where beneficiaries have unused basic-rate band. Appropriation has to be properly documented and done before the disposal contract, and it can affect entitlements under the will, so it is a point to raise with the solicitor handling the estate early rather than after exchange.

When the property sells for less than probate value

Two different reliefs are in play, and you cannot use both.

• Capital loss. If the sale price is below the probate value, the difference is an allowable capital loss that can be set against other gains in the same tax year or carried forward.
• IHT loss on sale of land relief. Where Inheritance Tax was actually paid, personal representatives can claim to substitute the lower sale price for the probate value, cutting the IHT bill by 40% of the fall. The claim is made on form IHT38 and applies to sales within four years of death.

If the IHT claim is made, the probate value is revised downwards, so the CGT loss disappears. Where IHT was paid, the 40% saving normally beats a capital loss worth 18% or 24% — but only if the estate was taxable in the first place. In a nil-rate-band estate there is no IHT to reclaim, so the capital loss is the only thing on the table.

Letting it first

Renting the property out while you decide what to do changes three things.

1. Rental profit is income. It is taxed at your marginal Income Tax rate — 20%, 40% or 45% in England, Wales and Northern Ireland, and at Scottish rates for Scottish taxpayers. The £1,000 property allowance can cover very small amounts of rent; beyond that you deduct actual expenses, with finance costs restricted to a 20% tax reducer.
2. No CGT relief is created. Letting does not generate Private Residence Relief or letting relief. Letting relief now only applies where the owner shared occupation with the tenant, which will not be the case for an empty inherited house.
3. Reporting obligations grow. Rental income normally has to go on a Self Assessment return, and Making Tax Digital for Income Tax starts from April 2026 for landlords with gross property income over £50,000.

The trade-off is straightforward: letting produces income now and keeps the asset exposed to future price growth that will be taxed at 18% or 24% when you sell. An empty house produces no income, still incurs council tax (often at a premium rate for long-term empty homes) and insurance, but keeps the position simple.

Reporting and paying

A UK residential property disposal that produces a CGT liability must be reported and the tax paid within 60 days of completion, using HMRC's report and pay Capital Gains Tax on UK property service. That applies to beneficiaries and to personal representatives. Missing the deadline triggers penalties and interest even if the tax is eventually paid.

If you already file a Self Assessment return, the gain also goes on the return — the 60-day report is in addition, not instead. Where the sale produces a loss or no tax is due, there is no 60-day report, but a loss you want to carry forward should still be claimed.

One useful quirk: a capital gain does not count as income, so it does not reduce your Personal Allowance above £100,000 and does not affect the High Income Child Benefit Charge. It does, however, sit on top of your income when deciding how much of the gain falls at 18% rather than 24%.

What to do next

Pin down the date-of-death value in writing first — everything else follows from it. Then run your own figures through the Capital Gains Tax on property calculator to see how much of the gain falls at 18% and how much at 24%, and check the estate's position with the Inheritance Tax calculator before deciding whether a valuation should be argued up or down. If probate has not yet been granted, GOV.UK's applying for probate pages set out the process and the forms.