Capital Gains Tax on Inherited Property UK 2026/27 | Full Guide

How the Base Cost Works for Inherited Property

When you inherit a property, your base cost for CGT purposes is the market value of the property at the date of death, the probate value. This is the figure used in the inheritance tax valuation. You do not use what the deceased originally paid for the property. This 'uplift to market value on death' is one of the most valuable tax benefits in the CGT system: all the gains that accrued during the deceased's lifetime are permanently wiped out, they never become taxable in the hands of the heir.

The practical consequence is that if you inherit a property with a probate value of £350,000 and sell it 18 months later for £360,000, your CGT gain is only £10,000, not the full increase in value since the deceased bought it decades ago. If the property falls in value between probate and sale (possible in a falling market), you may have a capital loss, which can be offset against other gains.

The probate value must be HMRC-accepted, that is, the value agreed with HMRC's Valuation Office Agency as part of the estate's IHT reporting. If the property was undervalued for probate, HMRC can challenge the CGT base cost. Professional valuations from a qualified surveyor at the date of death are important both for IHT and to establish the CGT base cost accurately.

CGT Rates on Inherited Property 2026/27

Inherited property that is sold is taxed as a residential property gain at the standard 2026/27 rates: 18% for gains within the basic-rate band and 24% for gains in the higher-rate band. The same annual exempt amount of £3,000 applies. These rates replaced the previous higher-rate of 28% in October 2024.

The 60-day reporting rule applies: if you sell an inherited UK residential property and CGT is owed, you must report and pay within 60 days of completion through HMRC's online property reporting service. If you are executors dealing with an estate, the estate may have its own CGT position, estates have a separate annual exempt amount (£3,000 for 2026/27 in the years of administration) and pay CGT at 24% (as there is no basic-rate element for estates).

Allowable Costs When Selling Inherited Property

From the probate value base, you can deduct allowable costs to arrive at the CGT gain. These include: solicitor fees and estate agent costs on the eventual sale; any capital improvements made by you after inheriting the property (extensions, new roof, new kitchen of improved specification, not repairs or decoration); and the cost of the probate valuation itself if incurred in connection with establishing the CGT base cost.

You cannot deduct administration costs of the estate, funeral costs, or IHT paid on the property. The estate's administration costs are matters for the estate accounts, not the individual's CGT calculation. Similarly, any mortgage costs or letting expenses do not reduce the CGT gain, they may be relevant for income tax but not for CGT.

Inheritance and Private Residence Relief

If an inherited property subsequently becomes your main residence, you may be entitled to partial Private Residence Relief when you eventually sell it. The PRR fraction is calculated as the proportion of your ownership period (from the date you inherited, not the deceased's original purchase) during which it was your main home, plus the final 9 months of ownership. If you move into the inherited property immediately and later sell it, having lived there the whole time, the full gain is likely to be PRR-exempt.

If you never move into the inherited property, you sell it as an investment or rental property, PRR is not available. The full gain (from probate value to sale price, less allowable costs) is subject to CGT. Multiple beneficiaries who inherit jointly each have their own CGT position, each person's share of the gain is taxed separately, with each beneficiary using their own AEA and income level to determine the rate.

Worked Example: Selling an Inherited Property

Sarah inherits her mother's buy-to-let property in July 2025. Probate value: £280,000. She does not move in. Over the following year, she spends £8,000 on a new boiler and bathroom (capital improvements). She sells in August 2026 for £305,000. Selling costs: £6,000 (estate agent and solicitor).

Gain calculation: £305,000 proceeds − £280,000 probate value − £8,000 improvements − £6,000 selling costs = £11,000 gross gain. After the £3,000 annual exempt amount: taxable gain = £8,000. Sarah's salary is £55,000, placing her fully in the higher-rate band. CGT = £8,000 × 24% = £1,920. She must report and pay within 60 days of the August 2026 completion.

If Sarah had a lower income, say £32,000, her taxable income would be £19,430. Remaining basic-rate band = £37,700 − £19,430 = £18,270. The full £8,000 gain fits within the remaining band: CGT = £8,000 × 18% = £1,440. The same gain costs £480 less simply because of Sarah's lower income.