UK Tax on Selling Inherited Property Guide 2026/27

Inheritance itself NOT income tax: receiving inherited property doesn't trigger income tax for beneficiary. IHT paid by ESTATE before distribution. Beneficiary receives property at "probate value" (date of death market value): this becomes CGT base cost. CGT on subsequent appreciation: gain = sale price - probate value. 3 main tax events: (1) IHT on estate: 40% above NRB + RNRB. PAID BY ESTATE. (2) Income tax on property income: if you rent it out before selling. (3) CGT on sale: 18% / 24% on appreciation since inheritance. Section 62 TCGA 1992: deemed acquisition at date of death market value.

Worked example - inherited grandmother's house valued £400k probate, sold £450k 2 years later: Probate value (base cost): £400,000. Sale proceeds: £450,000. Gain: £50,000. Plus allowable selling costs: estate agent 1.5% £6,750 + solicitor £2,000 + EPC £100 = £8,850. Reduces gain to £41,150. Annual Exempt Amount (AEA): £3,000. Taxable gain: £38,150. If beneficiary basic-rate taxpayer + gain within basic band: 18% × £38,150 = £6,867. If higher-rate: 24% × £38,150 = £9,156. Joint inheritance (2 siblings): each takes 50% = £19,075 taxable gain each. Both can use individual AEAs (£3k × 2). Strategic considerations: (1) Spouse transfer pre-sale: low-band spouse gets AEA + basic-rate. (2) Spread sales over tax years: AEA per year. (3) Pension contribution to reduce marginal rate.

Private Residence Relief (PPR) if you live in inherited property: Section 222 TCGA 1992. Full PPR exemption if property is your only/main residence throughout ownership. Partial PPR: if mixed use - period of residence proportion exempt. Worked example - inherit property + live in it 3 years, sell year 5: Periods: 3 years residence + 2 years non-residence. Plus final 9 months always treated as residence (Section 223 TCGA 1992 - "final period" relief). Effective residence: 3 + 0.75 = 3.75 years out of 5. PPR exempts 75% of gain. £50,000 gain × 75% PPR = £37,500 exempt. Taxable £12,500: × 18%/24% = £2,250 / £3,000. Compared to no PPR: £50k × 18% = £9k tax. Strategic move-in: even 9-12 months residence triggers some PPR. Final 9 months always counts.

Inherited rental property continues to receive rent: (1) Income tax on rental profits from date of death: per beneficiary's marginal rate. (2) Section 24 mortgage interest restriction applies: 20% credit only. (3) Property income remains taxed at standard Income Tax rates: 20% / 40% / 45% bands; no separate property-income rate schedule has been announced or enacted. (4) Pre-distribution administration period: rental income taxed at trust rates by executors. (5) Post-distribution to beneficiary: beneficiary's marginal rates. Selling later: (a) CGT base cost = probate value. (b) Plus capital improvements during ownership: extensions, renovations. (c) Minus selling costs. (d) AEA £3,000. (e) 18%/24% CGT residential rates. Worked example - inherit BTL £350k probate, rent for 5 years (£15k/yr profit), sell £450k: 5 years rental tax: £15k × 5 × 40% (higher rate) = £30,000 income tax. CGT on sale: £100k gain - £8k costs - £3k AEA = £89k × 24% = £21,360. Total tax over 5 years: £51,360. Plus IHT already paid by estate on £350k portion.

Residential property disposal requires 60-day reporting: Schedule 2 FA 2019 + Section 14 TCGA 1992. Mechanism: (1) Disposal completion date triggers 60-day clock. (2) Within 60 days: (a) Submit CGT on UK Property service return via gov.uk Personal Tax Account. (b) Pay estimated CGT. (3) Final reconciliation on annual SA return: 31 January following tax year end. (4) Overpayment refunded / underpayment topped up. Penalties for late reporting: (a) £100 + late reporting penalty. (b) £10/day from 3 months + late. (c) £300 / 5% tax due at 6 months. (d) Additional £300 / 5% at 12 months. Solicitor / conveyancer typically handles: should remind. Self-completion if straightforward: HMRC's "Report Capital Gains Tax on UK Property" service. Information needed: probate value, sale price, costs, AEA usage, payment.

Property left to multiple beneficiaries: Common arrangements: (1) Tenants in common per will: each beneficiary gets named percentage. (2) Joint tenants: equal shares + right of survivorship (rare for inherited). (3) Trust / life interest: complex - beneficiary entitlement varies. Each beneficiary treated as inheriting their share at probate value: separate CGT calculation. Worked example - 3 siblings inherit £600k house equally: Each inherits £200k base cost. Property sold £750k 2 years later: gain £150k total = £50k each. Each AEA £3,000. Taxable £47k each. Tax depends on each sibling's band. If 1 sibling basic-rate + 2 higher-rate: (a) Basic: 18% × £47k = £8,460. (b) Higher × 2: 24% × £47k × 2 = £22,560. Combined: £31,020. Strategic options: (1) One sibling buys out others: transfer at market value triggers CGT for selling siblings. (2) All sell to third party: simpler tax. (3) Hold + rent: ongoing income tax but defers CGT. (4) Spouse transfer pre-sale: utilise spouse AEA.

UK resident inheriting foreign property: complex cross-border. Foreign IHT first: source country's IHT / estate tax applies. UK DTA may offset. UK CGT on disposal: UK resident pays UK CGT on worldwide gains. Base cost = market value at date of death (probate value or equivalent). Foreign capital gains tax may apply too: e.g., Spain 19-23% non-resident, France 19-36% combined. FTCR offsets foreign tax: up to UK tax liability. Worked example - inherit Spanish villa valued €400k probate, sold €450k 2 years later: Gain €50k = ~£43k. Spanish CGT 19% × €50k = €9,500 (~£8,150). UK CGT 24% × £43k = £10,320. FTCR: £8,150 credit. Net UK tax: £10,320 - £8,150 = £2,170. Total worldwide tax: £10,320. Currency conversion: HMRC exchange rates at probate + sale dates. FX gains separately considered. Specialist international tax adviser: essential for cross-border.

Inherited property sale strategy checklist: (1) Establish probate value definitively: RICS valuation at date of death. (2) Consider variation of will via Deed of Variation: within 2 years of death. Re-direct to lower-band beneficiary. (3) Move in for PPR if possible: even short residence triggers final 9 months relief. (4) Spouse share pre-sale: utilise both AEAs + bands. (5) Capital improvements before sale: extension, renovation - add to base cost. (6) Time sale across tax years: maximise AEA. (7) 60-day reporting + payment: deadline strict. (8) Selling costs deductible: agent, legal, EPC, marketing. (9) Solicitor / conveyancer handles 60-day report: confirm. (10) Joint sale split: each beneficiary separate CGT. (11) Specialist tax adviser if >£100k gain: pension / spouse / timing optimisation. (12) Avoid CGT through PPR strategy: live in property. (13) Continue letting if better strategy: income tax vs deferring CGT. (14) Foreign property requires specialist: cross-border tax. (15) Family discussions early: avoid disputes over distribution / sale. (16) IHT already paid by estate: separate from beneficiary CGT. (17) Documentation 6+ years: probate, valuation, sale records. (18) Pension contribution to reduce marginal rate: in year of sale. (19) Charity donation pre-sale of share: tax-free disposal of donated portion. (20) Annual review with accountant: especially for long-hold rental scenarios.