Capital Gains Tax on Inherited Property: What You Need To Nnow

Inherited a UK property, sold it and now worried about Capital Gains Tax? This in-depth guide answers the big questions in plain English—and shows how to file in three days for a single fixed fee.

Why Time-Poor Homeowners Need to Care About CGT on Inherited Property

If you’re aged 30-49, juggling work, family and maybe another house move, you probably don’t have hours to decode HMRC manuals. Yet capital gains tax on inherited property can run into tens of thousands—and missing the 60-day deadline triggers automatic penalties. The good news? With the right information you can:

• Estimate the tax before exchanging contracts
• Use allowances and reliefs to reduce the bill
• File the return online in minutes—without learning tax law

What Exactly Is Capital Gains Tax on Inherited Property?

CGT is a tax on the gain you make when you dispose of a chargeable asset. Inheritance itself isn’t taxable for CGT—but selling inherited property CGT is. The gain equals:

(Sale proceeds – Probate value) – Deductible costs – Reliefs

The probate value is the open-market value at the date of death, confirmed by HMRC when the estate is finalised. Unlike a bought property, there’s no original purchase price to locate.

How Is the Gain Calculated? Step-by-Step

1. Start with sale price. Use the figure on your completion statement.
2. Subtract the probate value. This is your raw gain.
3. Deduct selling costs. Estate-agent fees, conveyancing, EPC, and even improvement costs (e.g., extension) that added permanent value can be deducted.
4. Apply annual CGT allowance. £6,000 for 2023/24 (dropping to £3,000 from April 2024).
5. Apply any reliefs such as Private Residence Relief for months you lived there.
6. Split the gain. Basic-rate taxpayers pay 18 % on the portion inside the basic-rate band and 24 % (28 % pre-April 2023) on the rest. Higher/additional-rate payers pay 24 % on all residential gains.

When Do You Pay CGT on Inherited Property?

For UK residential property sold on or after 27 Oct 2021 you must:

• Report the gain within 60 days of completion on HMRC’s ‘Capital Gains Tax on UK property’ service.
• Pay the estimated CGT by the same 60-day deadline.

Miss it and HMRC charges:

• £100 late-filing penalty immediately
• Further penalties at 6 & 12 months
• Daily interest on unpaid CGT

Reliefs, Allowances and Deductions You Shouldn’t Miss

Busy sellers often overpay because they overlook the following:

• Annual Exempt Amount (AEA): Claim your £6,000 tax-free band (2023/24).
• Private Residence Relief (PRR): If you moved into the inherited home—even briefly—the months of occupation and the final 9 months of ownership can be exempt.
• Lettings Relief: Available in limited cases where the property was once your main home and later rented.
• Spousal Transfers: Gifting a share to a spouse or civil partner before sale can double the AEA and utilise lower tax bands.
• Improvement Costs: Qualify large works: new kitchen replacements don’t count, but adding an extension or converting a loft does.

Example 1: Straightforward Sale After Inheritance

Details

• Probate value (June 2018): £300,000
• Sale price (Aug 2023): £430,000
• Selling costs: £7,000
• No improvements, never lived in
• Seller’s other income: £55,000 salary (higher-rate)

Calculation

1. Gain before costs: £430,000 – £300,000 = £130,000
2. Less selling costs: £7,000 → Chargeable gain £123,000
3. Less AEA: £6,000 → Taxable gain £117,000
4. All income already over higher-rate threshold, so CGT at 24 %
5. CGT due: £117,000 × 24 % = £28,080

60-day payment: £28,080

Example 2: Partial Private Residence Relief + Spousal Split

Couple’s details

• Inherited Jan 2017 at £240,000
• Lived in the house until Jan 2020
• Rented it out until sale in Jan 2024 for £390,000
• Selling costs: £6,000
• Improvement (loft conversion) in 2018: £25,000
• Joint owners; each earns £35,000 (basic-rate)

Step 1: Total gain: £390,000 – £240,000 – £25,000 – £6,000 = £119,000

Step 2: Split gain 50/50 → £59,500 each.

Step 3: Private Residence Relief (36 months residence + 9 final months) = 45 months / 84 months ownership → 53.6 % exempt. Gain exempt per owner: £59,500 × 53.6 % ≈ £31,892

Step 4: Chargeable gain per owner: £59,500 – £31,892 = £27,608

Step 5: Less AEA £6,000 → £21,608 taxable.

Step 6: Each owner still inside basic-rate band. CGT: £21,608 × 18 % = £3,889 Total household CGT: £7,778 — a massive saving versus no PRR or spousal planning.

The 60-Day Reporting Process (And Where It Goes Wrong)

HMRC’s online system is clunky, makes you upload PDFs of completion statements and expects you to understand relief codes. Time-poor sellers often:

1. Forget the property valuation method—HMRC may query figures months later.
2. Miss deductible costs like SDLT or improvement invoices.
3. Enter dates in US format and trigger calculation errors.
4. Submit a ‘nil gain’ incorrectly, then get penalty letters when HMRC recalculates.

One small typo can cost more in penalties than SwiftCGT’s fee.

SwiftCGT: Fixed-Fee, Three-Day Capital Gains Tax Filing

If spreadsheets and government portals make your eyes glaze over, SwiftCGT lifts the burden:

• Online wizard—upload statements and invoices in 10 minutes.
• HMRC-registered chartered accountants prepare and submit within three working days.
• Fixed fee: £299 sole owner or £449 joint owners (50 % off the second return).
• Personalised tax report so you understand exactly how the numbers stack up.

Get your CGT return filed now and reclaim your weekend.

Practical Checklist Before You Sell

• Locate the grant-of-probate valuation.
• Keep all invoices for improvements—photos help prove capital nature.
• Download your completion statement as soon as sale finalises.
• Check if you, your spouse or tenants occupied the property and for how long.
• Open a Capital Gains Tax on UK property account or engage SwiftCGT before completion.
• Put the tax money aside in a savings account to avoid interest charges.

Frequently Asked Questions

Do I pay CGT if I inherited the property more than 30 years ago?
Yes, the same rules apply. Your ‘purchase price’ is still the probate value at the date of death.

Can I deduct the mortgage balance?
No. Loans aren’t deductible for CGT; they’re a private financing cost.

What if I sell at a loss?
Report the loss within 4 years to carry it forward and offset future gains.

Is transferring to children before sale wiser?
This is a disposal for CGT at market value and rarely avoids tax—take advice before gifting.

Key Takeaways for Busy Sellers

1. CGT on inherited property is calculated from probate value, not the deceased’s purchase price.
2. You must file and pay within 60 days of completion—no extensions if you’re busy.
3. Use reliefs, split ownership and claim every allowable cost to shrink the bill.
4. SwiftCGT handles everything online for £299 (sole) or £449 (joint) in just three days.

Spend 10 minutes now, avoid penalties later—your future self will thank you.

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