Last updated: 14 October 2026
How do you calculate the profit on an inherited property?
For capital gains tax, your starting cost is the property’s market value at the date of death, usually the probate value, not what the deceased originally paid. Your gain is the sale price, less that probate value, less buying and selling costs and the cost of improvements you made. You then deduct the £3,000 annual exempt amount and pay CGT at 18% or 24% on residential property. If you let the property, rental profit is taxed separately as income each year.
Working out the gain
| Item | Amount example |
| Sale price | £340,000 |
| Less: probate value | (£300,000) |
| Less: estate agent and legal fees on sale | (£6,000) |
| Less: new kitchen and extension (improvements) | (£14,000) |
| Gain | £20,000 |
| Less: annual exempt amount | (£3,000) |
| Taxable gain | £17,000 |
| CGT at 24% (higher rate taxpayer) | £4,080 |
If the executors sell it
If the property is sold by the executors before it passes to you, the estate pays any CGT. Executors get the £3,000 annual exempt amount for the tax year of death and the next 2 years, and pay a flat 24% on residential property gains. If the property falls in value, the executors can claim IHT loss relief by substituting the lower sale price if it’s sold within 4 years.
Rental profit while you own it
Rental income less allowable expenses is taxed as income at your rates. Allowable costs include agent fees, insurance and repairs. Mortgage interest gets a 20% tax credit instead of a deduction. You can’t deduct the property’s value or depreciation.
Example
Grace inherits her father’s flat in May 2025, valued at £300,000 for probate. She lets it until selling in September 2026 for £340,000, after spending £14,000 on improvements and paying £6,000 sale costs. Her gain is £20,000, taxable gain £17,000 and CGT £4,080. She must report and pay within 60 days of completion using HMRC’s UK property account. Her rental profits are reported on her Self Assessment returns.
Main residence relief
If you move into the inherited home as your only or main residence, private residence relief covers the period you lived there plus the final 9 months of ownership.
Joint inheritance
If siblings inherit jointly, each calculates their share of the gain using their share of the probate value, and each uses their own annual exempt amount.
Common mistakes
- Using the original purchase price instead of the probate value
- Missing the 60-day reporting deadline
- Claiming repairs as improvements for CGT
- Forgetting to agree a realistic probate value
Records to keep
Keep the probate valuation, estate accounts, improvement invoices and completion statements.
Deducting costs of the estate
You can’t deduct probate fees or the executors’ legal costs as your own costs, but executors selling an estate property can use HMRC’s published scale of allowable expenses for the costs of establishing title. These reduce the estate’s gain.
Frequently asked questions
What if the probate value was too low?
HMRC may challenge it; a proper RICS valuation helps.
Is stamp duty due on inheriting?
No.
Does inheriting count for the higher SDLT rates?
Yes, if you buy another property while owning more than 50% of it after 3 years.
Is there IHT and CGT?
IHT is paid by the estate; CGT only on growth after death.
Related: jointly owned inherited property, making a section 222 election and CGT rollover when buying property.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with inherited property tax. See our landlord accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
