How to avoid capital gains tax on inherited property

Yes, there are several legitimate ways to reduce or completely avoid CGT on inherited property. The most effective is Private Residence Relief, which can eliminate CGT entirely if the deceased lived in the property as their main home and it is sold within two years of death. You can also use your annual CGT allowance, deduct allowable expenses such as legal fees and improvement costs, transfer a share to a spouse or civil partner before selling, and sell quickly to minimise the gain. The key is that CGT is only charged on the increase in value after the date of death, so a quick sale close to probate value may mean there is little or no gain to tax. We recommend seeking professional tax advice for your specific circumstances.

CGT on inherited property is calculated based on the difference between the sale price and the probate value (the market value of the property at the date of death). The probate value acts as your base cost, not the price the deceased originally paid for the property. From the gain, you can deduct your annual CGT allowance (currently 3,000 pounds per person), selling costs such as solicitor fees, and the cost of any qualifying improvements you made to the property. The remaining taxable gain is then charged at 18% if you are a basic rate taxpayer, or 24% if you are a higher or additional rate taxpayer. Whether you fall into the basic or higher rate band depends on your total taxable income plus the gain in that tax year.

Private Residence Relief (PRR) is a CGT relief that can exempt all or part of a gain from tax. For inherited property, PRR is most commonly available in two situations. First, if the deceased was living in the property as their main home at the time of death and the personal representatives sell it within two years, PRR can eliminate CGT on the entire gain. Second, if a beneficiary inherits the property and moves into it as their own main residence, PRR covers the period they live there plus a final period exemption of 9 months after they move out. PRR is one of the most valuable reliefs available and can save thousands of pounds in tax. Professional advice is recommended to ensure you qualify.

You can deduct several types of expense from your gain to reduce your CGT liability. These include solicitor fees for the sale, estate agent fees if you used one, the cost of any structural improvements you made to the property (such as an extension, new bathroom, or new kitchen - but not general repairs or maintenance), the cost of the probate valuation, and stamp duty land tax if applicable. You should keep receipts and records for all expenditure as HMRC may ask for evidence. These deductions reduce the size of your taxable gain, which directly reduces the amount of CGT you owe.

Yes, transfers between spouses or civil partners are free from CGT. If the inherited property is in your name alone, you can transfer a share to your spouse or civil partner before selling. When the property is then sold, each of you can use your own annual CGT allowance against the gain, effectively doubling the tax-free amount. Each spouse may also fall into different income tax bands, potentially meaning part of the gain is taxed at the lower 18% rate rather than 24%. This is a well-established and legitimate strategy, but it must be a genuine transfer. We recommend seeking professional tax advice before making any transfers.

CGT on inherited property is based on the increase in value between the date of death (the probate value) and the date of sale. The longer you hold the property, the more time there is for the value to rise above the probate value, increasing your potential CGT liability. By selling quickly - ideally soon after probate is granted - you minimise the opportunity for the property to grow in value. If you sell at or close to the probate value, the gain will be small or zero, meaning little or no CGT is due. A cash sale to a company like HouseBought4Cash can complete in as little as 7 to 14 days once probate is in place, giving the property very little time to appreciate.

The annual CGT allowance (also called the annual exempt amount) is the amount of capital gain you can make in a single tax year before any CGT is due. The current allowance is 3,000 pounds per person per tax year. When you sell an inherited property, this allowance is deducted from your taxable gain before the tax rate is applied. If you have multiple beneficiaries, each person who owns a share of the property can use their own allowance. Personal representatives of the estate also have their own annual allowance for the tax year of death and the following two tax years. If the gain is within the allowance, no CGT is payable.

Yes, in most cases you are required to report the sale to HMRC within 60 days of completion, even if no CGT is due because of reliefs or allowances. This is done through the UK property disposal service on the HMRC website. You must report the sale and pay any CGT owed within this 60-day window. Failure to report on time can result in penalties and interest charges, even if the final tax amount is zero. The only exception is if the property is sold for less than the probate value and there is a capital loss. Your solicitor or tax adviser can help you file the return correctly and on time.