Capital Gains Tax on Inherited Assets in the UK: What You Need to Know

What Is Capital Gains Tax on Inherited Assets?

Capital Gains Tax is a tax on the profit you make when you sell or dispose of an asset that has increased in value. When it comes to inherited assets, you do not pay CGT when you initially inherit them.

However, if you decide to sell the inherited property or asset later on and it has appreciated in value since the date you inherited it, you will need to pay CGT on the gain.

How Are Inherited Assets Valued for Capital Gains Tax Purposes?

When you inherit an asset, it is valued at the market value on the date of the previous owner's death. This valuation serves as the base cost when calculating any future capital gains. If you sell the asset, your taxable gain is the difference between this inherited valuation and the sale price, minus any allowable expenses.

For example, if you inherited a property valued at £200,000 on the date of inheritance and later sold it for £300,000, your gain would be £100,000. Deducting allowable costs such as estate agent fees, legal expenses, or costs related to improvements can further reduce the taxable amount.

Capital Gains Tax Rates for Inherited Assets in the UK (2024)

The Capital Gains Tax rates vary based on your income tax band and the type of asset you are selling. Below, we break down the CGT rates for different individuals and asset classes in the UK for 2024.For the tax year ended 5th April 2025 capital gains tax rates are as follows:

The rate of Capital Gains Tax for residential property in the UK is currently 18% at the basic rate and 24% at the higher rate.

The rate of Capital Gains Tax for commercial property and other assets that are not residential property will depend on the date on which the disposal of the asset took place.

Up to and including 29th October 2024, disposals of these assets were taxed at 10% at the basic rate and 20% at the higher rate.

From 30th October 2024 onwards, these assets are charged at 18% at the basic rate and 24% at the higher rate, aligning the rates to the same rates as residential property.

There are further rules and rates for gains from "carried interest" which we deal with in this article.

Annual Exemption Allowance for Capital Gains Tax on Inherited Assets

The Annual Exemption Allowance allows you to make gains up to a certain amount before any CGT is due. For 2024, this allowance is £3,000 for individuals.

If you inherit an asset jointly with another person, each owner can apply their allowance, effectively doubling the tax-free amount to £6,000. Utilising this allowance effectively can significantly reduce your tax liability.

Reliefs Available for Capital Gains Tax on Inherited Assets

There are a few reliefs available that can help reduce your CGT liability when selling inherited assets:

• Private Residence Relief (PRR): If the inherited property was used as your main home for some time before selling it, you may be eligible for PRR, which can reduce or eliminate the CGT owed on the gain.

• Spousal Transfer Relief: If you transfer an inherited asset to your spouse or civil partner before selling it, you may be able to defer CGT liability or use both of your allowances to minimise the gain.

• Holdover Relief: This relief may be available if the inherited asset was part of a business. It allows you to defer CGT until a future date when the asset is sold.

Reporting Capital Gains Tax on Inherited Assets

It is essential to report any capital gain on an inherited asset to HMRC within the required time frame. If you make a gain on the sale of an inherited asset, you must report it and pay any CGT within 60 days of the sale completion for residential property or by the deadline of your Self-Assessment Tax Return for other assets.

Failing to report the gain on time can result in penalties and interest, so it’s important to ensure compliance. HMRC’s online service allows you to report gains easily, but consulting a tax expert may be advisable if you are uncertain about the details

Frequently Asked Questions About Capital Gains Tax on Inheriting an Asset

Q: Do I have to pay Capital Gains Tax when I inherit an asset?

A: No, you do not pay CGT when you initially inherit an asset. CGT is only due if and when you sell the inherited asset and it has increased in value since you inherited it.

Q: What is the base value for calculating CGT on inherited property?

A: The base value is the market value of the property or asset on the date of the previous owner's death.

Q: Can I reduce my CGT liability by living in an inherited property?

A: Yes, if you live in the property as your main residence before selling it, you may qualify for Private Residence Relief, which can reduce or eliminate your CGT liability.

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