CGT Uplift on Death UK (2026): Why Pre-Death Capital Gains Escape Tax and How Beneficiaries Get a Stepped-Up Base Cost

The CGT 'uplift' (also called 'CGT rebasing on death' or 'stepping up the base cost') is a fundamental feature of the UK capital gains tax system that prevents the same gains from being taxed twice — once as IHT on death and again as CGT. Here is how it works: (1) THE RULE — TCGA 1992 s.62: when a person dies, all of their assets are treated as being acquired by the personal representatives at the date-of-death market value (the probate value). The deceased person makes NO CGT disposal at death. The accumulated capital gain from acquisition to death simply escapes CGT entirely; (2) WHY THERE IS NO CGT ON DEATH: the UK tax system taxes the same event (death and transfer of assets) under IHT — not CGT. If CGT were also charged at death, the same asset could face 40% IHT plus up to 20% (or 24% for residential) CGT on the same gain — effective rates exceeding 64%. The CGT rebasing prevents this double-charge. Parliament decided that IHT is the death tax, and CGT only applies to gains realised during a person's lifetime or by living beneficiaries after inheritance; (3) THE BENEFICIARY'S BASE COST: when the beneficiary receives the asset from the estate (whether by assent from personal representatives, by distribution from a trust, or otherwise), their base cost for CGT purposes is set at the probate value — the market value on the date of death. This is often substantially higher than what the deceased originally paid. If the beneficiary then sells the asset immediately after inheriting, their gain is likely zero (sale proceeds ≈ probate value); (4) A WORKED EXAMPLE: Property bought in 1998 for £50,000. Worth £500,000 at death. Probate value = £500,000. (a) IHT: the £500,000 value is included in the estate for IHT purposes — 40% on the amount above the nil-rate band; (b) CGT on death: £0 — there is no CGT. The £450,000 gain accumulated over 26 years is NOT charged to CGT. The CGT 'clock' is reset to zero; (c) Beneficiary inherits: base cost = £500,000. If beneficiary sells for £500,000 one month later: gain = £0. No CGT. If beneficiary sells for £550,000 five years later: gain = £50,000 (from probate value). CGT applies on £50,000 only; (5) DESIGN RATIONALE: the rebasing at death encourages people to hold assets long-term without fear of CGT lock-in. The trade-off is that IHT captures the value accumulated over a lifetime.

The contrast between transferring assets at death (with CGT uplift) and giving them away during lifetime (with no CGT uplift) is one of the most important distinctions in UK tax planning: (1) LIFETIME GIFTS TRIGGER CGT IMMEDIATELY: when you give an asset to someone during your lifetime, TCGA 1992 s.17 treats you as making a disposal at market value on the date of the gift — even if no money changes hands. You pay CGT on the full market value minus your base cost. Example: you give a buy-to-let flat (bought for £100,000, now worth £300,000) to your adult child. CGT applies on: £300,000 − £100,000 = £200,000 gain. At 24%: £48,000 CGT payable by you; (2) HOLD-OVER RELIEF — DEFERRAL BUT NOT EXEMPTION: in certain circumstances, CGT on a gift can be 'held over' under TCGA 1992 s.165 (business assets) or s.260 (gifts to trusts or qualifying gifts). Hold-over means: the giver pays no CGT at the date of gift; the recipient takes the giver's original base cost (not market value at gift date). The gain is deferred — NOT exempted. When the recipient eventually sells, they pay CGT from the original base cost. CRITICAL: hold-over relief under s.165 is NOT available for residential property unless it is a business asset (which an ordinary holiday home or family home is not). For residential property gifts, CGT is generally due immediately; (3) THE DEATH ADVANTAGE: if the same buy-to-let (bought for £100,000, now worth £300,000) is held until death: (a) No CGT at death (rebasing to £300,000 probate value); (b) IHT applies to the £300,000 value above the nil-rate band; (c) Beneficiary inherits at £300,000 — if sold immediately, no CGT. Total tax on the asset: only IHT (no CGT). Compare to lifetime gift: IHT (PET — exempt if donor survives 7 years) PLUS immediate CGT of £48,000; (4) THE PRACTICAL PLANNING POINT: for assets with large unrealised gains (especially residential property with no PPR relief), dying with the asset is almost always more tax-efficient than giving it away. The CGT uplift eliminates the pre-death gain entirely; (5) GIFTS OF MAIN HOME: PPR relief fully covers the gain on the main home during periods of occupation — so gifting or selling the main home is generally CGT-free anyway. The CGT uplift point is most significant for second homes, investment property, and shares with large unrealised gains.

During the administration of the estate (between death and distribution to beneficiaries), the personal representatives (executors or administrators) may need to sell assets. The CGT rules for personal representatives are distinct from both the deceased's rules and the beneficiaries' rules: (1) PERSONAL REPRESENTATIVES AS SEPARATE CGT TAXPAYER: personal representatives are treated as a separate legal person for CGT. They acquire all the estate assets at the date-of-death market value (the same probate value rebasing that applies to beneficiaries — TCGA 1992 s.62(2)); (2) CGT RATES FOR PERSONAL REPRESENTATIVES: personal representatives pay CGT at a flat rate — there is no basic/higher rate split: Residential property: 24% (from 6 April 2024 — previously 28%); Other chargeable assets (shares, investments, business assets): 20% (not 24%); (3) ANNUAL EXEMPT AMOUNT FOR PERSONAL REPRESENTATIVES: the AEA of £3,000 (2025-26) is available to personal representatives only in the year of death and the following two tax years. After the third tax year, no AEA is available to the estate — a reason to complete estate administration efficiently; (4) EXAMPLE OF PR SELLING A PROPERTY: Property probate value = £500,000. Sold by estate during administration for £520,000. Gain = £20,000. CGT at 24% = £4,800. AEA £3,000 reduces gain to £17,000. Tax = £4,080; (5) PERSONAL REPRESENTATIVE LOSSES: if a PR sells at less than probate value, a CGT loss is created. This loss can be carried forward against future PR gains in the same estate. If the estate has been distributed before the loss is realised, it remains in the estate for tax purposes — professional advice is essential; (6) THE ASSENT IS NOT A CGT EVENT: when the PR assents a specific asset to a beneficiary (transfers it from the estate without selling it), no CGT arises for the PR. The beneficiary takes the asset at probate value as their base cost. The PR's CGT responsibility for that asset ends at assent; (7) REPORTING: any chargeable gain by a personal representative must be reported via self-assessment. Residential property gains still require 60-day reporting by the PR — within 60 days of the sale completing.

The CGT uplift at death interacts with several IHT planning strategies in ways that can either increase or decrease overall tax efficiency depending on the approach: (1) HOLDING ASSETS UNTIL DEATH — THE 'LOCK-IN' STRATEGY: for assets with large unrealised CGT gains (especially residential property and shares bought decades ago), holding until death eliminates the CGT. Simultaneously, IHT applies to the full value. The net tax burden depends on: whether the estate is over the IHT threshold; what IHT reliefs are available (BPR for unlisted shares; APR for farmland; spouse exemption; RNRB); (2) DEED OF VARIATION — THE BEST OF BOTH WORLDS: after death, beneficiaries can redirect a gift by deed of variation (within 2 years) to another beneficiary. The redirected gift is treated as if it were made by the deceased, not by the redirecting beneficiary. This means: IHT recalculated as if the original will/intestacy had directed to the new recipient; CGT rebasing still applies to the asset; a charity can receive the redirected asset CGT-free and IHT-free. This is one of the most powerful post-death tax-planning tools; (3) GIFTS DURING LIFETIME WITH PET STRATEGY: under a PET (potentially exempt transfer) strategy, the donor makes a gift and hopes to survive 7 years (making it IHT-exempt). But if the gift is residential property, CGT is triggered on the gift. For a large gain, the immediate CGT (up to 24%) plus the risk of IHT (if donor dies within 7 years) makes the PET strategy unattractive for residential property; (4) PENSIONS — POST-APRIL 2027: from April 2027, unused DC pension funds on death enter the IHT estate (Finance Act 2024). But pension funds are NOT subject to CGT uplift on death (they are not capital assets held by the individual in the same way). Pension death benefits are taxed under income tax rules, not CGT. This means the CGT rebasing planning for other assets remains unaffected by pension changes; (5) BUSINESS ASSETS AND BPR: business assets qualifying for BPR (Business Property Relief) under IHTA 1984 s.105 can pass IHT-free. They also benefit from the CGT rebasing on death. So BPR-qualifying assets can effectively pass to the next generation free of both IHT (BPR) and CGT (rebasing). This is why unlisted trading company shares are often considered the most tax-efficient assets to pass on death — 100% BPR + CGT rebasing.

The CGT uplift applies to the vast majority of assets owned by the deceased personally. There are a small number of exceptions: (1) ASSETS HELD IN TRUST: if an asset is held in a trust at the time of the settlor's death, the trust is a separate legal person and its assets do not form part of the deceased's estate for CGT purposes. The trust's CGT position is unaffected by the settlor's death. When a life interest trust ends (the life tenant dies — TCGA 1992 s.72), the trustees are treated as if they disposed of and reacquired the trust assets at market value. But the uplift is to the trustee level — the trust, not the individual beneficiary, benefits; (2) INCOME TAX ASSETS — NOT CAPITAL ASSETS: assets that produce income (not capital gains) on disposal are governed by income tax rules, not CGT. These include: annuities; interest in possession under certain income-bearing trusts; employment-related securities in some circumstances. The CGT rebasing has no relevance here; (3) PENSION FUNDS (DC PENSIONS): a defined contribution pension pot is not owned by the individual as a capital asset — it is held in trust by the pension scheme. The CGT rebasing does not apply. On death, pension death benefits are paid according to the scheme rules and the expression of wishes — from April 2027, unused pension funds enter the IHT estate but remain subject to income tax when drawn by beneficiaries, not CGT; (4) ASSETS SUBJECT TO HOLD-OVER RELIEF — WHERE ORIGINAL BASE COST IS PRESERVED: if hold-over relief was claimed on a gift into trust (s.260) and the asset later passes to a beneficiary on the trust terminating, the chain of base costs can be complex. The rebasing at death of the settlor applies to the trustee as noted above, which can interact with earlier hold-over computations; (5) ITEMS THAT ARE NOT CHARGEABLE ASSETS: cars, gilts, NS&I, sterling — exempt from CGT entirely — do not need rebasing. There is no CGT on these assets regardless of who holds them or how they are transferred. The rebasing point is irrelevant for these; (6) WASTING ASSETS: leasehold interests with less than 50 years to run; other wasting assets. CGT rules for wasting assets are different — the rebasing on death still applies but the calculation methodology is specific.