When you sell property you inherited, your base cost is its market value at the date of death, and if that value was agreed for Inheritance Tax it is binding for capital gains tax too. Only the change in value after death is taxed, on the personal representatives if they sell during the administration or on the beneficiary if the property has passed to them. A fall in value can sometimes be fed back into the Inheritance Tax valuation instead of producing a capital loss.

What is the base cost of inherited property?

Section 62(1) of the Taxation of Chargeable Gains Act 1992 treats the deceased’s assets as acquired by the personal representatives on the death at their market value on that date. Nobody pays capital gains tax on the growth during the deceased’s lifetime; the clock restarts at death.

Section 274 then links that figure to Inheritance Tax. Where Inheritance Tax is chargeable on the estate and the value of an asset has been ascertained for that purpose, the ascertained value is taken as the market value at death for capital gains tax. HMRC’s Capital Gains Manual at CG32210 explains the aim: one valuation used for both taxes, so the same argument is not had twice.

People usually call this figure the probate value. CG32220 notes that the term has no significance for tax purposes. What counts is whether the value was ascertained, not whether it appeared on the probate paperwork. GOV.UK’s guidance on selling property says to use market value if you inherited it and do not know the Inheritance Tax value.

When is the Inheritance Tax value binding, and when is it not?

CG32224 says a value is ascertained only if HMRC used it to arrive at a final Inheritance Tax charge and the amount of tax depended on it. CG32222 lists common cases where values are not ascertained, including estates passing wholly to a surviving spouse, civil partner or charity, estates comfortably below the threshold, and assets fully covered by business or agricultural relief at 100%. In practice most estates pay no Inheritance Tax, so the probate figure is often just the starting point. If HMRC later opens an enquiry into the sale, the market value at death can be examined afresh using normal valuation principles (CG32230).

CG32222 also warns HMRC officers that a value may be inflated when it makes no difference to Inheritance Tax, in the hope of a higher base cost later. A professional valuation at the date of death protects the beneficiaries if the figure is questioned years afterwards.

Who is taxed if the property is sold: the estate or the beneficiary?

CG30750 explains that gains on assets sold by the personal representatives before residue is ascertained are theirs, not the beneficiaries’. During the administration a beneficiary holds only a right to have the estate properly administered, not the property itself.

Once a property is transferred to a beneficiary, section 62(4) says no gain arises to the personal representatives and the beneficiary is treated as if the personal representatives’ acquisition had been theirs. So the beneficiary takes over the date of death and the value at death. Where several beneficiaries become joint owners, CG31140 says each takes a fraction of the value of the whole property, not a discounted value for a share.

Whether to sell inside the estate or transfer first is often the key decision, because the rates, allowances and reliefs differ.

How are personal representatives taxed on a sale?

  • Rate. GOV.UK states that personal representatives pay 24% on gains from 6 April 2026, with no lower rate band.
  • Annual exempt amount. Section 1K(7) gives the personal representatives the annual exempt amount for the tax year of death and the next two tax years, and none after that (CG30600). The amount is £3,000 for 2026 to 2027.
  • Costs of establishing title. CG30570 lets personal representatives in England, Wales and Northern Ireland deduct either actual costs or a scale allowance based on the size of the estate. For example, for a gross estate between £500,001 and £1,000,000 the scale is 0.8% of the probate value of the assets sold. Estate agent and legal fees on the sale itself are deductible as normal.
  • Private residence relief. Section 225A extends the relief to personal representatives where the house was the only or main residence of one or more individuals both before and after the death, and those individuals are entitled as legatees to 75% or more of the net proceeds.
  • Reporting. A gain on UK residential property must be reported and paid within 60 days of completion. GOV.UK notes that personal representatives cannot pay through the online account; HMRC tells them how to pay after the report. See the 60 day property return.

How is the beneficiary taxed on a later sale?

CG31180 says the normal rules apply, with the asset treated as acquired at the date of death at the value passing to the personal representatives. The beneficiary uses their own annual exempt amount and their own rate, which for gains from 6 April 2026 is 18% within the basic rate band and 24% above it. Two restrictions catch people out: unused losses of the deceased or of the personal representatives cannot be passed to the beneficiary, and the personal representatives’ costs of establishing title cannot be deducted by the beneficiary. Section 64(1) does allow the beneficiary to deduct the incidental costs of the transfer to them. If the beneficiary moves in and makes the house their home, private residence relief is measured against their period of ownership, which starts at the date of death.

CG31140 also warns that if a beneficiary pays the personal representatives to settle estate debts in return for receiving a particular property, the Court of Appeal in Passant v Jackson treated that as a sale, not a transfer to a legatee.

What if the property has fallen in value since death?

A sale below the death value would normally give a capital loss, usable only against the seller’s own gains. For estates that paid Inheritance Tax there is often a better answer. Section 191 of the Inheritance Tax Act 1984 lets the appropriate person claim to substitute the sale price for the death value where property is sold within three years of death, and section 197A extends this to sales in the fourth year, but only where the price is lower. The claim covers every interest sold in that period by the claimant in the same capacity, so sales at a profit are swept in too. Small differences below the lower of £1,000 and 5% are ignored, and sales to beneficiaries or their close family are excluded. The claim must be made within four years of the end of the three year period.

CG32234 explains the knock on effect: if the value is reduced for Inheritance Tax, section 274 makes the sale price the base cost, so the sale shows only a small loss equal to the selling costs. HMRC does not accept a claim made only to raise the base cost when no Inheritance Tax is payable on the asset, following Stonor v CIR.

How does this work in a simple case?

Illustration only. A house is valued at £400,000 at death, and that value is ascertained because the estate pays Inheritance Tax. The gross estate is £800,000. The executors sell the house 18 months later for £430,000, paying selling costs of £6,000.

Step Amount
Proceeds £430,000
Less selling costs £6,000
Less base cost (value at death) £400,000
Less scale cost of establishing title (0.8% of £400,000) £3,200
Gain £20,800
Less annual exempt amount (within two years after the year of death) £3,000
Tax at 24% £4,272

Had the house sold for £360,000 instead, a section 191 claim would reduce the Inheritance Tax value to £360,000, cutting the Inheritance Tax and making £360,000 the base cost.

What mistakes are most common?

  • Assuming the probate figure is final when no Inheritance Tax turned on it.
  • Selling in the personal representatives’ names after their annual exempt amount has run out, when transferring to beneficiaries first would have let each use their own.
  • Missing the 60 day deadline because the estate is still being administered; see also tax returns for someone who has died.
  • Claiming a capital loss when a section 191 claim was available and worth more.
  • Deducting the personal representatives’ title costs in a beneficiary’s computation. The wider mechanics of the uplift are on capital gains tax 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.