Inheriting a Property: How CGT and IHT Interact (They're Not the Same Tax)

Potentially yes, but they tax different things and at different times, so it isn't double taxation of the same value. Inheritance Tax is charged once, on the estate, at the date of death, on the property's full market value at that point. Capital Gains Tax is only charged later, if and when you (the beneficiary) sell the property, and only on the increase in value between the date of death and the date you sell. If you sell immediately at probate value, there is usually little or no CGT because there's been no further gain. IHT taxes the value that existed at death; CGT taxes the growth that happens on your watch after that.

The probate value — the property's market value at the date of death — does two jobs. First, it's added to the rest of the estate to work out whether Inheritance Tax is due and how much. Second, it becomes your acquisition cost (base cost) for Capital Gains Tax purposes going forward, replacing whatever the deceased originally paid for the property decades ago. This 'CGT-free uplift to market value at death' is one of the most valuable, and least understood, features of the UK tax system — it means none of the gain built up during the deceased's lifetime is ever charged to CGT.

No, and this is where people most often think they're being taxed twice. IHT paid by the estate does not reduce your CGT bill, and there's no credit or offset between the two taxes. What protects you from double taxation is the base cost uplift, not a credit. Because your CGT acquisition cost is set at the full probate value (the same value IHT was calculated on), you are never taxed on the same increase in value under both regimes — but each tax is calculated completely independently using its own rules, allowances and rates.

This can genuinely create a partial double hit, but not for the reason people assume. If you under-declare probate value to reduce IHT, then sell at the true (higher) market value, your CGT gain looks artificially large because your acquisition cost was understated. HMRC's District Valuer can also challenge a low probate valuation retrospectively, which increases the IHT bill and simultaneously reduces your future CGT gain. Getting an accurate, defensible RICS valuation at the point of death protects you on both taxes — it's the single most important number in the whole process.

You pay CGT only on the gain since death: sale price minus probate value minus selling costs and any qualifying improvement costs, minus your £3,000 annual exempt amount. For 2026/27, residential property gains are taxed at 18% if you're a basic-rate taxpayer or 24% if you're a higher or additional-rate taxpayer, based on your total income including the gain. If three siblings inherit equally and sell for a combined £30,000 gain over probate value, each reports a £10,000 share — likely covered mostly or entirely by their individual £3,000 exemptions plus basic-rate headroom, so the actual bill is often much smaller than people fear.

It can. If you make the inherited property your only or main home and later sell it, Private Residence Relief covers the gain for the period you lived there as your main residence, plus the final 9 months of ownership regardless of use. If you never move in and keep it as a rental or hold it empty while deciding what to do, none of that relief applies and the full post-death gain is taxable when you eventually sell. Many people delay a sale for a year or two while the market moves, which is fine — the CGT only bites on genuine growth in that period.

Yes. If Capital Gains Tax is due on the sale of a UK residential property (including an inherited one, once you're the legal owner), you must report the gain and pay the tax within 60 days of completion using HMRC's UK Property Account, separately from your normal Self Assessment return. This applies to each beneficiary individually if the property is jointly inherited. Missing the 60-day deadline triggers automatic penalties and interest even if you'd have owed no tax at all on a Self Assessment timetable.

Yes, and this is common. IHT is normally due within 6 months of death, before probate is granted, which creates a cashflow problem if most of the estate's value is tied up in a property. HMRC's 'instalment option' lets you pay IHT on the property in 10 annual instalments (with interest on the unpaid balance) while you arrange a sale, rather than forcing a fire sale. Once the property sells, any remaining instalments become due immediately from the proceeds.

Yes for IHT — transfers between UK-domiciled spouses and civil partners are fully exempt from Inheritance Tax regardless of the estate's size, whether during life or on death. But this only defers the tax, it doesn't cancel the property's eventual CGT exposure. When the surviving spouse later sells (or dies and passes it on again), the same rules apply: probate value at the relevant date becomes the new acquisition cost, and CGT is calculated on growth from that point.

Rarely directly, because the two taxes use different trigger points, but timing decisions do interact. Gifting a property during your lifetime removes it from your estate for IHT purposes after 7 years (subject to gift-with-reservation rules if you keep using it), but a lifetime gift is also a disposal for CGT purposes at that point, potentially triggering an immediate CGT bill for you as the giver — unlike inheritance on death, which resets the CGT base cost with no gain crystallised. This is why many advisers say 'don't gift appreciating property purely to save IHT' without modelling the CGT trade-off first.