Death is not a disposal for capital gains tax. Section 62 of the Taxation of Chargeable Gains Act 1992 says the deceased is not treated as disposing of their assets, but the personal representatives are treated as acquiring them at market value on the date of death, so every gain built up during the deceased’s lifetime disappears. The estate pays Inheritance Tax instead, and where a value is agreed for Inheritance Tax it fixes the new capital gains tax base cost.

Why is there no capital gains tax when someone dies?

Section 62(1) has two limbs. Limb (b) says the assets of which the deceased was competent to dispose are not deemed to be disposed of by them on death, whether or not they are left by will. Limb (a) says those assets are deemed to be acquired on the death by the personal representatives, or whoever they devolve on, for a consideration equal to their market value at the date of death.

The combination is what practitioners call the uplift: no charge on the deceased, and a fresh base cost for the estate. GOV.UK summarises the effect for beneficiaries: Inheritance Tax is usually paid by the estate, and you only have to work out capital gains tax if you later dispose of the asset.

In practice this means the value built up to the date of death is exposed to Inheritance Tax rather than capital gains tax, and only growth after death falls into capital gains tax.

Which assets are uplifted?

Section 62(10) defines the assets the deceased was competent to dispose of as those they could have left by will, and it expressly includes their severable share of anything held as a joint tenant. So a half share of a jointly owned house or share portfolio is uplifted even though it passes to the survivor automatically. The test is ownership by the deceased, not whether the asset passed under the will.

Some things are not uplifted because the deceased did not own them at death:

  • Gifts with reservation. CG32236 explains that the reservation of benefit rules are an Inheritance Tax fiction. For capital gains tax the asset was acquired by the donee at the date of the gift, at market value then, so there is no uplift at death even if Inheritance Tax charges the asset as part of the estate.
  • Assets already given away during life. The donee keeps their base cost from the date of the gift. See gifts and market value.

Section 62(5) adds a related rule: a gift made in contemplation of death (donatio mortis causa) produces no chargeable gain.

How does the Inheritance Tax valuation set the new base cost?

Section 274 provides that where Inheritance Tax is chargeable on the death and the value of an asset has been ascertained for that tax, that value is the market value at death for capital gains tax. CG32210 says the purpose is a single valuation used for both taxes.

The link only works where a value has genuinely been ascertained. CG32224 requires HMRC to have used the value to reach a final Inheritance Tax charge that depended on it. CG32222 lists the usual cases where that does not happen: estates passing entirely to a spouse, civil partner or charity, estates well below the threshold, and assets fully covered by business or agricultural relief at 100%. CG32225 adds that where relief is given at less than 100%, the ascertained value is the value before the relief is deducted. When nothing is ascertained, CG32230 says market value is found under the general rule in section 272, and HMRC can challenge it when a later sale is examined.

This produces an interaction worth understanding. Where no Inheritance Tax turns on a value, CG32222 notes there is an incentive to overstate it to give the beneficiaries a higher base cost, and HMRC is alert to it. CG32238 shows a further twist: when a transferable nil rate band is claimed on the second death, section 274 does not apply to assets in the first spouse’s estate, so a higher figure used later for Inheritance Tax does not rewrite the earlier base cost.

What happens to gains held over before death?

A gain held over under section 165 or section 260 reduces the recipient’s base cost. HS295 confirms that if the recipient is an individual who later dies, the normal exemption on death applies. The deferred gain is therefore never collected, and the beneficiaries of the recipient take the value at death.

Trusts are different. HS295 explains that where the asset was transferred to trustees and the life tenant dies, the trustees do not get the normal exemption; the chargeable gain is restricted to the held over gain. If that event is itself chargeable to Inheritance Tax, a fresh holdover claim may be possible.

What happens to the deceased’s own gains and losses?

Disposals the deceased made before death are taxed in the normal way, and the personal representatives must settle that liability; see tax returns for someone who has died. Section 62(2) gives a special relief for losses made in the tax year of death: so far as they cannot be used in that year, they can be carried back against gains of the three previous tax years, later years first. CG31180 makes clear that any unused losses cannot be passed to beneficiaries.

Can a variation of the will change the result?

Yes. Under section 62(6) a written variation or disclaimer made within two years of the death is not itself a disposal, and the variation is treated as if made by the deceased. Section 62(7) requires the instrument to contain a statement that the parties intend this to apply, and section 62(8) excludes variations made for consideration other than another variation. Without the statement, a beneficiary redirecting an inherited asset is making a gift at market value at the date of the variation, and any growth since death is a gain on them.

Why does the uplift affect lifetime giving?

Illustration only. Martin holds shares he bought for £20,000, now worth £120,000.

Route Capital gains tax result Recipient’s base cost
Gives the shares to his daughter now (no holdover available) Gain of £100,000 taxed on Martin £120,000
Gives qualifying business shares now with a holdover claim No tax now; gain deferred £20,000
Keeps them and leaves them in his will, value £120,000 at death No capital gains tax £120,000

The third route removes the gain but leaves the shares in the estate for Inheritance Tax, unless a relief such as business relief applies. The second route also benefits from the uplift if his daughter keeps the shares until her own death. Which route is better depends on both taxes, which is why lifetime planning considers them together.

What mistakes come up?

  • Assuming the probate figure is beyond challenge when no Inheritance Tax depended on it.
  • Expecting an uplift on property given away with a reservation of benefit.
  • Forgetting the statement in a deed of variation, which turns a tax neutral redirection into a gift.
  • Ignoring the three year carry back for losses in the year of death.
  • Treating the uplift as permanent. Growth after death is taxable when the estate or beneficiary sells; see selling inherited property and, for company shares, transmission of shares on death.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.