Inheriting a Property UK — Tax, Costs, and What to Do Next (2026)

Inheriting a property can feel like a gift — but it comes with significant decisions and potential tax obligations. Whether the estate owes inheritance tax, whether you will owe capital gains tax when you sell, and whether to keep, sell, or let the property are questions that need careful thought.

This guide explains the tax position and the practical options.

Step 1: Inheritance Tax — Is the Estate Liable?

Inheritance tax is paid by the estate, not by you as the beneficiary. Before probate is granted, the executor must calculate the estate’s value and pay any IHT due to HMRC.

The key thresholds (2026/27):

If the estate is worth more than the available threshold, the excess is taxed at 40%. The property’s value is included in the estate at its probate value (market value at date of death).

Example: The estate is worth £600,000 (including a property at £450,000). Single person, no RNRB (not left to direct descendants). IHT-free amount: £325,000. Taxable: £275,000. IHT: £110,000. This is paid by the estate before you receive anything.

Step 2: Your Tax Position as Beneficiary

No CGT when you inherit

You do not pay capital gains tax at the point of inheritance. The property passes to you at its probate value (market value at date of death) — this becomes your base cost.

The step-up in base cost

This is the most important tax concept for inherited property. The CGT “clock” resets at the date of death.

Example:

• Deceased bought a house for £80,000 in 1990
• Market value at date of death (2026): £350,000
• That £270,000 gain built up during the deceased’s lifetime is never taxed — it disappears

You inherit at £350,000. If you sell immediately for £350,000, there is zero CGT. If you sell later for £400,000, your gain is only £50,000 — the amount above the probate value, not above the original £80,000 purchase price.

CGT if you sell after the date of death

If the property has risen in value between the date of death and your sale, CGT applies on the gain above your annual exempt amount (£3,000 in 2026/27).

CGT rates on residential property 2026/27:

Example:

• You inherit a property at probate value £300,000
• You sell 18 months later for £320,000
• Gain: £20,000
• Less annual exempt amount: £3,000
• Taxable gain: £17,000
• CGT at 24% (higher rate): £4,080

You would pay £4,080 in CGT on the sale. Report and pay within 60 days of completion via HMRC’s property CGT service.

Selling the Inherited Property

If you intend to sell, consider:

Selling promptly: If sold quickly (within weeks of obtaining probate), the sale price may be accepted by HMRC as the probate value — eliminating any CGT entirely. There is no bright-line rule, but a sale shortly after the date of death at or near the probate value is typically straightforward.

Selling after improvement: Any capital improvements you make (extensions, conversions — not repairs or decoration) add to your base cost and reduce the taxable gain.

Joint inheritance: If several people inherit the property, all beneficiaries must agree to sell and CGT applies to each person’s share of the gain separately. Each person uses their own annual exempt amount.

Letting the Inherited Property

You can let the inherited property and receive rental income. This is taxable as income in the normal way — see the Landlord Income Tax guide.

Key considerations:

• You pay income tax on net rental profit at your marginal rate (20%, 40%, or 45%)
• Mortgage interest relief is restricted to basic rate tax (20%) even for higher rate taxpayers
• When you eventually sell, CGT applies to the full gain from date of death
• Lettings Relief (previously worth up to £40,000 of exempt gain) now applies only if you lived in the property at the same time as your tenant — this rarely applies for inherited properties

The longer you let before selling, the more gain potentially accumulates and becomes taxable.

Keeping the Property as Your Main Home

If you move into the inherited property and it becomes your main residence, you may qualify for Private Residence Relief (PRR) — exempting the gain from CGT entirely.

• Full PRR: If the property is your main home for the entire period of ownership before sale, 100% of the gain is exempt
• Partial PRR: If you let the property first and then moved in, only the gain attributable to periods of main residence is exempt (plus the final 9 months of ownership regardless)

This is the most tax-efficient outcome for beneficiaries who actually intend to live in the property.

Stamp Duty on Inheriting Property

You do not pay stamp duty land tax (SDLT) when you inherit a property — SDLT applies to purchases, not inheritances. However, if you are a joint owner of another property and you inherit a share in a further property, you may be treated as owning two properties for SDLT purposes if you later buy another home (the 3% additional dwelling surcharge applies to those who own two or more properties at the point of purchase).

Practical Checklist

• Confirm the probate value of the property with the estate’s surveyor or valuations
• Find out whether IHT is payable and whether it has been settled by the estate
• Decide: sell, let, or occupy (with tax implications of each in mind)
• If selling, aim to complete as close to the probate valuation date as possible to minimise CGT
• If letting, register as a landlord if required locally and ensure gas/electrical safety certificates are in place
• If CGT arises, report and pay within 60 days of sale completion

Related Guides

• What to Do With Your Finances When Someone Dies — the full bereavement hub
• Inheritance Tax Guide UK 2026/27 — full IHT thresholds, reliefs, and payment
• Capital Gains Tax on Property UK 2026/27 — how residential property CGT works in full
• Probate UK — Do You Need It?
• Intestacy Rules — Who Inherits Without a Will?