We inherited my mum's house in England a few years ago that was valued at £300k. We're thinking of selling it now for £350k. Is CGT due on the whole £50k profit or are there any reliefs we can claim, like private residence relief, even though we haven't lived in it?
Quick Answer
CGT will be due on the profit from your inherited property sale. Private Residence Relief typically doesn't apply if you haven't lived in the property as your main home, but the annual exempt amount and potential relief for periods of ownership by the deceased can reduce your taxable gain.
## Understanding Capital Gains Tax on Inherited Property Sales
When selling an inherited property that has increased in value since probate, Capital Gains Tax (CGT) becomes a key consideration. For the sale of a property valued at £300,000 at the time of inheritance and now selling for £350,000, the gain is £50,000. This gain is generally subject to CGT, with specific rules for residential property.
### What is the Capital Gains Tax (CGT) rate on inherited property?
The Capital Gains Tax (CGT) rate applicable to residential property depends on your income tax band. For basic rate taxpayers, the rate is 18% of the chargeable gain. Higher and additional rate taxpayers are subject to a 24% CGT rate on residential property gains. The annual exempt amount for 2026/27 is £3,000. This means that only the gain above this threshold is taxable. For a £50,000 gain, the taxable amount would be £47,000 after the exemption. Therefore, a higher rate taxpayer would pay 24% of £47,000, totalling £11,280 in CGT.
### Does Private Residence Relief apply to inherited property?
Private Residence Relief (PRR) is typically only available if the property was your main home throughout your period of ownership. Since you have not lived in your mother's inherited house as your primary residence, PRR would not be applicable in this scenario. The property is treated as a separate asset, and any gain from its sale is subject to CGT. For property to qualify for PRR, it must have been occupied as your only or main home for all or part of your ownership, and this must be a factual occupancy, not just for tax avoidance purposes.
### Can other costs be deducted from the gain?
Yes, certain costs incurred during the period of ownership can be deducted from the gross gain to reduce your taxable amount. These include legitimate expenses such as Stamp Duty Land Tax (SDLT) paid upon inheritance (if applicable, though typically not on primary residence inheritance itself), legal fees for the purchase or sale (if you had to buy out other beneficiaries, for example), estate agent fees, and the cost of any improvements made to the property. Normal maintenance and repair costs, however, are not deductible for CGT purposes. For instance, if you spent £5,000 on a new boiler and bathroom to increase value, and £2,000 on agent fees, your £50,000 gain would reduce by £7,000, making the new gain £43,000. After the £3,000 annual exempt amount, the taxable gain would be £40,000, leading to a CGT bill of £9,600 for a higher rate taxpayer.
### What are the reporting requirements for CGT on residential property?
For residential property sales completed from April 2020, you must report and pay any Capital Gains Tax within 60 days of the completion date. This is done via a 'UK property account' through the HMRC online service. Failure to meet this 60-day deadline can result in penalties and interest charges. It is important to remember that this 60-day rule applies regardless of whether you have other self-assessment obligations.
### Scenario Cases for CGT on Inherited Property:
* **Scenario 1: Basic Rate Taxpayer selling with minor costs.** Inherited a property at £300,000, sold for £350,000. Gain £50,000. Deductible costs are £2,000 (legal/agent fees). Net gain £48,000. After £3,000 annual exemption, taxable gain £45,000. CGT payable at 18% is £8,100.
* **Scenario 2: Higher Rate Taxpayer with significant improvement costs.** Inherited a property at £300,000, sold for £350,000. Gain £50,000. Deductible costs include £15,000 for a new kitchen/bathroom and £3,000 agent fees. Net gain £32,000. After £3,000 annual exemption, taxable gain £29,000. CGT payable at 24% is £6,960.
## Smart Strategies for Inherited Property
* **Accurate Valuation at Inheritance:** Ensure the probate valuation accurately reflects the property's market value at the time of death. This establishes your base cost for future CGT calculations.
* **Track All Capital Expenditure:** Keep meticulous records of all improvement costs, such as extensions, new kitchens, or significant renovations. These directly reduce your chargeable gain.
## Investor Rule of Thumb
When inheriting property, understand its value at probate establishes your cost basis; any gain above this, less legitimate expenses and annual exemption, is subject to residential Capital Gains Tax, typically 18% or 24% depending on your income tax band, payable within 60 days of sale.
## What This Means For You
Understanding the precise CGT implications for inherited properties is vital for managing your profit and cash flow. Without careful calculation of your cost basis, allowable expenses, and the 60-day reporting window, you could face unexpected tax bills and penalties. At Property Legacy Education, we ensure our investors know exactly how to assess these factors and plan accordingly, turning inherited assets into profitable, compliant investments rather than tax burdens.
Steven's Take
Inheriting property can feel like a windfall, but it often comes with a tax liability. The key is understanding that your cost base for CGT is the probate valuation, not what your mum originally paid for it. This is a common misconception. Once you've established that base, every legitimate cost you incur to improve or sell the property can be offset against the gain. Don't forget that 60-day reporting window for residential property sales; HMRC doesn't mess about with those deadlines. Proper record-keeping from day one of inheriting is paramount.
What You Can Do Next
1. Verify the probate valuation: Locate the official probate documents to confirm the property's valuation at the time of inheritance, as this forms your cost base for CGT calculation.
2. Compile a list of all allowable expenses: Gather invoices and receipts for any improvements, legal fees, or estate agent fees related to the sale or major renovation of the property. Refer to gov.uk/capital-gains-tax/what-you-pay-it-on for eligible deductions.
3. Estimate your potential CGT liability: Use your estimated net gain and current income tax bracket (18% for basic, 24% for higher/additional rate taxpayers) to calculate the likely CGT bill. Utilize the £3,000 annual exempt amount.
4. Familiarize yourself with the 60-day reporting rule: Understand that you must report and pay CGT on residential property sales within 60 days of completion via gov.uk/report-and-pay-your-capital-gains-tax.
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