How does selling an inherited property for cash impact capital gains tax in the UK?

For CGT purposes, the important factors are who owns the property when it is sold, the value recorded for probate, the disposal proceeds and any reliefs or deductible costs. Receiving cash rather than having a conventional sale through an estate agent does not, by itself, change the tax treatment.

The probate value is the starting point

When someone dies, the property is normally treated as passing at its market value at the date of death. This is commonly referred to as the probate value. If the personal representatives later sell the property, the estate’s gain or loss is generally measured by comparing the net sale proceeds with that value.

The probate valuation should be supported by evidence, particularly where the property is unusual, in poor condition, occupied, subject to restrictions or sold for a noticeably different amount. A later sale below the probate value may indicate that the original valuation should be reviewed, although the circumstances and the evidence will determine the appropriate treatment.

Who is responsible for the tax?

The tax position depends on whether the property is sold by the estate during administration or has already been transferred to a beneficiary:

• Sale by the estate: the personal representatives calculate any gain or loss arising after the deceased’s date of death and deal with the estate’s reporting obligations.
• Transfer to a beneficiary: the beneficiary generally takes the property at its market value at the date of transfer for CGT purposes. A later increase in value may be taxable when that beneficiary sells it.
• Joint ownership: each owner’s share normally needs to be considered separately. The ownership proportions, any declaration of trust and the person’s available reliefs can affect the calculation.

An estate can therefore have a CGT liability even though the beneficiary who eventually receives the sale proceeds is not the person who makes the disposal. The will, the administration of the estate and the date of any transfer should be checked carefully.

Costs that may reduce the gain

Allowable costs can reduce the amount subject to CGT. These may include professional fees directly connected with buying or selling the property, certain legal and valuation costs, and qualifying expenditure that improves the property rather than merely maintaining it. Costs of administering the estate are not automatically deductible against the property gain, so they should be separated from costs directly linked to the disposal.

Keep invoices, completion statements, probate valuations, evidence of improvement work and details of any other relevant expenditure. The calculation should use the appropriate net proceeds rather than assuming that the full amount received is taxable.

Reliefs and exemptions

Private residence relief may be relevant where the property was the deceased’s main home or became the beneficiary’s main residence, but it is not automatic simply because the property was inherited. A property that is left empty, occupied by someone else or held as an investment may not qualify for the same relief. The period of occupation, ownership and the circumstances surrounding any absence all matter.

Other possible factors include:

• the individual’s or estate’s available annual exempt amount for the relevant tax year;
• capital losses that can be set against gains, subject to the applicable rules and reporting requirements;
• the ownership share of a spouse or civil partner, where a transfer between them has taken place;
• whether the property was used for a qualifying business purpose; and
• whether special rules apply because the property was transferred at undervalue or to a connected person.

Tax reliefs can depend on precise dates and factual evidence. In particular, inheriting a property does not automatically create a main-residence exemption for the person who inherits it.

Cash sales and the sale price

A cash sale is still a disposal for CGT purposes. The relevant consideration is normally the agreed market transaction value and the amount actually received under the contract, not the source of the buyer’s funds. Selling directly to a cash buyer may alter the sales process or the costs incurred, but it does not create a separate CGT exemption.

If the sale is made to a relative, connected company or another connected party, market-value rules may apply even where the price stated in the contract is lower. Professional advice is particularly important where the transaction is below market value, involves a related party or includes non-cash consideration.

Reporting and payment

Where CGT is due on the sale of UK residential property, the person or estate responsible for the disposal may have reporting and payment obligations within specific statutory deadlines. The deadline and return required can differ depending on whether the seller is an individual, personal representatives or another type of taxpayer. A later tax return may also be required, and reporting a disposal does not necessarily remove the need to include it in the relevant annual return.

Personal representatives should obtain the estate’s tax reference and establish whether the disposal falls within the administration period. Beneficiaries should keep the transfer date, valuation and sale documents if they later dispose of the property themselves.

Practical steps before completion

1. Confirm whether the estate or a beneficiary is the legal and beneficial owner at the date of sale.
2. Obtain and retain the probate or transfer valuation and supporting evidence.
3. Prepare a schedule of sale costs, qualifying improvements and any losses.
4. Check whether private residence relief or another relief can be claimed.
5. Compare the expected gain with the relevant annual exemption and tax position.
6. Identify the applicable reporting deadline before the transaction completes.

CGT calculations can become complicated where probate is contested, the property has been occupied or rented, ownership has changed during administration, or the sale price differs substantially from the probate value. A solicitor, accountant or tax adviser can confirm the calculation and filing responsibilities before the contract is completed.