Capital Gains Tax on Inherited Shares UK: The Complete Guide
Inheriting shares or an investment portfolio does not trigger an immediate CGT bill — but when you sell, the rules are specific. This guide explains your base cost, the death uplift, ISA implications, and what executors need to know.
The Core Rule: CGT Uplift on Death
Under section 62 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992), assets passing on death are treated as acquired by the legatee (the person inheriting) at their market value at the date of death. This is the “CGT uplift” (sometimes called the “step-up in base cost”).
Two practical consequences follow:
- No CGT on pre-death gains. If the deceased bought 1,000 shares at £2 each in 2010 and the shares were worth £15 each at death, the £13,000 gain made during their lifetime is permanently wiped out for CGT purposes. It is not inherited.
- Your base cost is the probate value.If those shares are worth £15 each at death and you eventually sell for £18, your gain is £3 per share — calculated from the date of death, not from the deceased’s original purchase price.
Note: CGT uplift does not mean inheritance is tax-free. Inheritance tax (IHT) may have been paid on the estate. CGT and IHT are separate taxes. The uplift ensures CGT is not charged on gains that the estate has already been taxed on via IHT.
How Inherited Shares Are Valued for Probate
The probate valuation is the base cost for CGT. Getting it right matters.
Quoted (listed) shares
For shares listed on the London Stock Exchange or other recognised exchanges, HMRC accepts the lower of two values taken from the Stock Exchange Daily Official List (SEDOL) for the date of death:
- The “quarter-up” price: add one quarter of the difference between the closing bid and offer prices to the lower (bid) price.
- The mid-price of any recorded bargains on the date of death.
If the death falls on a weekend or Bank Holiday, you may use either the last business day before or the first business day after death, and take the lower value.
Unquoted shares
Unquoted (private company) shares must be valued by negotiation with HMRC Shares and Assets Valuation (SAV). The agreed value becomes the base cost for CGT. This can be significant when business property relief (BPR) has reduced or eliminated IHT on the shares but a future sale generates a CGT gain from the death value.
AIM shares
Shares on AIM (Alternative Investment Market) are treated as unquoted for IHT (qualifying for BPR) but as quoted for CGT valuation purposes. Use the quarter-up or mid-bargain method as for listed shares.
What Happens to Shares Step by Step
Date of death
Shares vest in the personal representatives (executors or administrators). The probate value is fixed as at this date. No CGT arises on any gains made by the deceased.
During estate administration
If the executors sell shares to raise cash to pay debts, IHT, or legacies, a chargeable disposal occurs. The gain or loss is measured from the probate value. Executors report on a Self Assessment return for the estate. Their annual exempt amount is £1,500 for 2024/25.
Transfer to beneficiary
If the executors transfer shares in specie to the beneficiary (without selling), this is not a disposal for CGT. The beneficiary takes them at probate value — no gain arises at the point of transfer.
Beneficiary sells
When the beneficiary sells, the gain is the sale proceeds minus the probate value. The beneficiary's annual exempt amount (£3,000 for 2024/25) can be used. Gains above this are taxed at 18% (basic rate) or 24% (higher/additional rate) for non-residential property assets from April 2024.
Inherited ISA Shares: The ISA Wrapper Dies With the Account Holder
This surprises many beneficiaries. When an ISA holder dies, their ISA loses its tax-advantaged status from the date of death (for income tax and CGT purposes for the estate). The shares or cash inside become part of the estate and are subject to the normal CGT rules described above.
Additional Permitted Subscription (APS) for surviving spouse
A surviving spouse or civil partner who was living with the deceased has one exception: the Additional Permitted Subscription (APS). This allows the surviving spouse to make a one-off ISA contribution equal to the value of the deceased’s ISA at death (or the value at the date the ISA closes, if higher). The APS does not require the surviving spouse to receive the actual ISA assets — they can use their own cash. It must be used within three years of the date of death or 180 days after the estate is fully administered, whichever is later.
For beneficiaries other than a surviving spouse, there is no APS. The shares or cash come out of the ISA wrapper and future gains or income are fully taxable.
CGT on Inherited Shares vs Inherited Property: Key Differences
| Issue | Inherited shares | Inherited property |
|---|---|---|
| CGT rate on disposal | 18% / 24% (2024/25) | 18% / 24% (residential, 2024/25) |
| Reporting deadline | Self Assessment by 31 Jan after tax year end | 60 days from completion for residential property |
| Main residence exemption | No equivalent | Private residence relief may apply |
| Fall in value relief | Loss available for CGT offset | IHT fall in value relief (s179 IHTA 1984) separate |
| Business relief interaction | BPR reduces IHT; CGT base cost still = probate value | APR reduces IHT; CGT base cost still = probate value |
Practical Planning Points for Beneficiaries
- Keep a copy of the probate valuation. You will need it when you eventually sell. Your stockbroker or investment platform will not automatically know the date-of-death value.
- Use your annual exempt amount. You have £3,000 per tax year (2024/25) before CGT is payable. If you are selling a large portfolio over several years, phasing disposals across tax years can reduce or eliminate the liability.
- Bed and ISA. After inheriting shares outside an ISA, you can sell them (potentially crystallising a gain or loss) and repurchase inside a new or existing ISA using your £20,000 annual ISA allowance. Future gains from inside the ISA are sheltered.
- Spouse or civil partner transfers. Transfers between spouses living together are at no gain/no loss, so you can split the portfolio to use both annual exempt amounts before selling.
- Business Asset Disposal Relief.If the inherited shares are in a trading company and you work in it, Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) may apply on disposal, giving a 10% CGT rate on gains up to a lifetime limit.
Frequently Asked Questions
Do I pay CGT immediately when I inherit shares?
No. Inheritance itself is not a CGT disposal. CGT is only triggered when you sell or otherwise dispose of the shares. At the moment you inherit them your base cost is set at the probate valuation — the market value at the date of death. Any growth from death to the date you sell is the gain you may have to report. If the total gain for the tax year is within your annual exempt amount (£3,000 for 2024/25), no CGT is payable.
What is the base cost of inherited shares for CGT?
The base cost is the probate value — the market value of the shares at the date of death, as reported to HMRC on the inheritance tax return or to the probate registry for small estates. For quoted (listed) shares this is the lower of the 'quarter up' price and the mid-price from the Stock Exchange Daily Official List on the date of death, unless the shares were suspended. For unquoted shares the value agreed with HMRC Shares & Assets Valuation is used.
Do inherited shares inside an ISA keep their ISA wrapper?
No. When the deceased dies, the ISA loses its tax-advantaged status. The cash or shares inside can be transferred to the surviving spouse's ISA as an Additional Permitted Subscription (APS) — a one-off top-up equal to the value of the deceased's ISA at death — but only if the spouse was living with the deceased at the date of death. If transferred to any other beneficiary, the shares or cash come out of the ISA wrapper and future gains are taxable. The APS allowance must be used within 3 years of the date of death (or 180 days after completion of administration, if longer).
What if the shares fall in value between death and when I sell?
If you sell for less than the probate value, you make a capital loss. That loss can be set against other capital gains in the same tax year or carried forward to future years. There is no equivalent of the IHT fall in value relief for CGT — CGT is simply calculated on the actual sale proceeds minus the probate base cost, which means a falling share price between probate and sale creates a loss, not relief on the IHT already paid.
Do executors pay CGT when they sell shares during estate administration?
Yes, if the shares are sold by the personal representatives during administration. The personal representatives are treated as a continuing entity and their base cost is the probate value. They have an annual exempt amount of £1,500 for 2024/25 (half the individual amount). Gains above this are reported on a Self Assessment return for the estate. If shares are transferred in specie (as shares, not sold) to a beneficiary, no CGT arises in the hands of the personal representatives — the beneficiary takes them at probate value.
Make Sure Your Investment Portfolio Is Covered by Your Will
A clearly drafted will determines who inherits your shares and investment accounts — reducing delay, avoiding intestacy, and ensuring CGT planning starts on the right footing.