Tax Guidance for Inherited Property

The 2 year rule for inherited property

Understanding Capital Gains Tax reliefs on inherited property can save you thousands of pounds. This guide explains the 2 year rule, Private Residence Relief, and the final period exemption in plain English.

Important tax disclaimer: This guide provides general information about Capital Gains Tax reliefs on inherited property. Tax rules are complex and change frequently. This content does not constitute tax advice, and you should always consult a qualified tax adviser or accountant for guidance specific to your circumstances. HMRC is the definitive authority on UK tax matters.

2 years

Private Residence Relief window

9 months

Final period exemption

18% / 24%

CGT rates (basic / higher)

What is the 2 year rule?

When you inherit a property, you receive it at its market value on the date of the deceased's death. This is known as the probate value or base cost. If the property increases in value between the date of death and the date you sell it, the difference is potentially subject to Capital Gains Tax (CGT).

The 2 year rule relates to Private Residence Relief (PRR). If the deceased was living in the property as their only or main residence at the time of death, and the property is sold within two years of the death, HMRC will generally treat the property as qualifying for PRR. This means no CGT is payable on the gain, even if none of the beneficiaries lived in the property themselves.

This is an extremely valuable relief. Without it, if the property's value has increased between the date of death and the date of sale, the gain would be taxable at 18% (for basic rate taxpayers) or 24% (for higher rate taxpayers) after any available annual exempt amount has been used.

It is important to note that the 2 year window runs from the date of death, not from the date probate is granted. Given that probate itself can take several months (and sometimes much longer), the effective selling window can be surprisingly short. This is one reason why a quick cash sale can be so beneficial - it helps ensure the sale completes within the 2 year period.

How Private Residence Relief works

Private Residence Relief (PRR) is one of the most valuable tax reliefs in the UK. It exempts from CGT any gain made on the sale of a property that has been used as the owner's only or main residence. When you sell your own home, PRR normally applies automatically - you do not even need to claim it.

For inherited property, the position is more nuanced. The personal representatives (executors or administrators) can nominate the property for PRR within two years of death if the deceased lived there as their main home. This nomination effectively transfers the deceased's PRR entitlement to the estate, shielding the gain from CGT.

If a beneficiary inherits the property and moves into it as their main home, they can claim PRR for the period they live there, plus the final period exemption (see below). If they have another property that is their main residence, they can nominate which property qualifies for PRR, but only one property can benefit at a time.

Where PRR does not apply in full, the gain is calculated on the portion of ownership during which the property was not the main residence. For example, if you owned the property for four years and lived in it for two of those years, roughly half the gain might be exempt (plus the final period exemption). The calculations can become complex, which is why professional tax advice is strongly recommended.

Deceased's main home

Sold within 2 years of death — no CGT payable under PRR

Beneficiary moves in

PRR applies for the period you live there as your main home

Multiple properties

You can nominate one property at a time for PRR

Partial PRR

Proportional calculation based on period of residence

The 36 month rule - final period exemption

The final period exemption is a valuable CGT relief that can benefit owners of inherited property. Under the current rules, if a property has been your only or main residence at any point during your ownership, the final 9 months of ownership are automatically exempt from CGT, regardless of whether you are living there at the time of sale.

The "36 month rule" refers to the original version of this relief, which provided a 36 month final period exemption before April 2014. This was subsequently reduced to 18 months, and then to 9 months from April 2020. The 36 month period still applies in two specific circumstances: where the property owner is disabled, or where the owner is living in a care home.

Final period exemption timeline

36 months

Before Apr 2014

18 months

Apr 2014 – 2020

9 months

After Apr 2020 (current)

For inherited property, the final period exemption can be particularly relevant if you inherit a property, move into it as your main home, and then move out before selling. The last 9 months of your ownership would be covered by the exemption. If the deceased was disabled or in a care home, the extended 36 month period may apply to any period before death when the property was their main residence.

It is worth noting that if you sell a property and there is a chargeable gain, you must report it to HMRC and pay any CGT due within 60 days of completion (for UK residential property). This reporting requirement applies even if reliefs reduce the gain to zero - you may still need to file the return. Your tax adviser can help you determine your obligations.

Examples of how the rules apply

Example 1: Selling within 2 years - no CGT

Sarah's mother passed away in March 2024. Her mother lived in the property as her main home. The probate value was 250,000 pounds. Sarah received probate in August 2024 and sold the property in January 2025 for 260,000 pounds. Because the property was the deceased's main home and the sale completed within two years of death, PRR applies and no CGT is payable on the 10,000 pound gain.

No CGT payable

Example 2: Selling after 2 years - potential CGT

James's father passed away in January 2023 with a property valued at 300,000 pounds. Due to probate delays and a slow property market, the house did not sell until April 2025 for 330,000 pounds. Because the sale completed more than two years after death, PRR under the 2 year rule does not apply. The 30,000 pound gain is potentially subject to CGT after deducting the annual exempt amount. James would need to report and pay the tax within 60 days.

CGT may apply

Example 3: Moving in then selling

Emma inherited her father's house and moved into it as her main home for two years. She then moved out and rented a flat while waiting for the right buyer. She sold the inherited property seven months after moving out. Because the property was her main residence during ownership, and the sale occurred within the 9 month final period exemption, the entire gain is covered by PRR.

PRR applies - no CGT

Why selling quickly to a cash buyer can help meet the 2 year window

The 2 year clock starts ticking on the date of death, not when probate is granted. Given that probate itself can take 8 to 16 weeks (or much longer for complex estates), and a traditional open market sale takes an average of 4 to 6 months from listing to completion, the window to qualify for PRR under the 2 year rule can be tighter than families expect.

If probate takes 6 months and a traditional sale takes another 6 months, you have used up 12 of your 24 months before you have even started thinking about delays, chain breaks, or buyer issues. Add in time for clearing the property, making repairs, and dealing with estate matters, and the 2 year deadline can arrive sooner than anticipated.

A cash sale to HouseBought4Cash typically completes within 2 to 4 weeks once probate is in place. We buy the property as-is - no repairs needed, no clearance required, no chain. This can be the difference between qualifying for PRR and facing a CGT bill of thousands of pounds.

We understand that the decision to sell a loved one's home is never purely financial. But where the 2 year deadline is approaching and you want to preserve the PRR benefit for the estate or beneficiaries, a cash offer provides the certainty and speed that a traditional sale cannot guarantee.

Approaching the 2 year deadline?

Do not let a valuable tax relief slip away. Get a no-obligation cash offer on your inherited property today and complete within weeks.

2 year rule and CGT FAQ

Common questions about Capital Gains Tax on inherited property

The 2 year rule refers to the period during which you can nominate an inherited property as your main residence for Private Residence Relief (PRR) purposes. If the deceased was living in the property as their main home before they died, and you sell the property within two years of death, HMRC will generally accept that the property qualifies for PRR - meaning no Capital Gains Tax is payable on any gain. This relief can save beneficiaries thousands of pounds in tax, making it one of the most valuable reliefs available on inherited property.

For a deceased estate, the 2 year rule gives personal representatives (executors or administrators) a window to make certain elections and nominations regarding the tax treatment of estate assets. Specifically, HMRC allows a two-year period from the date of death during which a deed of variation can be executed to redirect assets, and during which nominations for Private Residence Relief can be made. This period is important for tax planning and ensuring the estate is administered as efficiently as possible.

You do not necessarily need to live in the property at all to avoid CGT, depending on the circumstances. If the deceased lived there as their main home and you sell within two years, PRR may apply without you living there. If you do choose to live in the property as your main home, the period of occupation is exempt from CGT. Additionally, the final 9 months of ownership (the final period exemption) are always exempt regardless of whether you are living there, provided the property was your main home at some point during your ownership.

The 36 month rule is sometimes confused with the current final period exemption, which is actually 9 months (reduced from 18 months in April 2020, and from 36 months before that). The 36 month final period exemption was available before 6 April 2014. Under the current rules, if a property has been your only or main residence at any point during your ownership, the last 9 months of ownership are automatically exempt from CGT, even if you are not living there during that time. The extended 36 month period still applies for disabled persons and those in care homes.

There is no legal deadline to apply for probate, and not applying within 2 years does not prevent you from applying later. However, delaying probate can have practical consequences: you cannot sell the property without a grant of probate, ongoing costs accumulate (council tax, insurance, maintenance), and you may miss the 2 year window for Private Residence Relief on the property. Financial institutions may also be less cooperative with older estates. While there is no time limit, applying promptly is strongly advisable.

There are several legitimate ways to reduce or eliminate CGT on inherited property. The property receives a market value uplift at the date of death, so if you sell soon after and the value has not increased, there may be no gain to tax. Private Residence Relief may apply if the deceased lived there and you sell within two years. You can also use your annual CGT allowance (currently 3,000 pounds per person). If there are multiple beneficiaries, each can use their own allowance. Moving into the property as your main home can also create PRR eligibility. Professional tax advice is essential to maximise these reliefs.

This page is for general information only and does not constitute tax, legal, or financial advice. Tax rules and rates are subject to change. Always consult a qualified tax adviser before making decisions about inherited property. HouseBought4Cash is a property buying company and does not provide tax advice.