Private Residence Relief Inherited Property UK (2026): CGT When You Sell an Inherited Home

When a beneficiary receives an inherited property and later sells it, Capital Gains Tax (CGT) may be payable on the gain between the probate value and the sale price: (1) THE CGT UPLIFT ON DEATH — NO CGT FOR THE DECEASED: under TCGA 1992 s.62(1), property is 'rebased' to its market value at the date of the deceased's death. This means the deceased's estate is treated as if they acquired the property at its market value on the date of death — any gain that accrued during the deceased's lifetime is exempt from CGT. No CGT is payable on death; (2) THE BENEFICIARY'S BASE COST: the beneficiary inherits the property with a base cost equal to its probate value (market value at date of death). CGT is only payable on gains arising AFTER the date of death; (3) CALCULATING THE GAIN ON SALE: the chargeable gain is: SALE PROCEEDS minus PROBATE VALUE (plus allowable costs). Allowable costs include: (a) legal and estate agent fees on the sale; (b) costs of improvements made by the beneficiary (not repairs or maintenance); (c) any other incidental costs of the acquisition (e.g. professional fees for the probate valuation, if allocable to CGT); (4) THE ANNUAL EXEMPT AMOUNT: the CGT annual exempt amount is currently £3,000 (2024-25 and 2025-26). Gains below this threshold are free of CGT. Only the gain exceeding £3,000 is taxable; (5) CGT RATES ON RESIDENTIAL PROPERTY (2025-26): since the Autumn Budget 2024, CGT rates on residential property are: (a) 18% if the gain (combined with other income) falls within the basic rate band; (b) 24% on any gain (or portion of gain) falling in the higher rate band. The 18%/24% rates apply to disposals from 30 October 2024. The old rates were 18%/28% — if you are looking at earlier periods, check the applicable rate; (6) 60-DAY REPORTING — RESIDENTIAL PROPERTY: any disposal of UK residential property that gives rise to a CGT charge must be reported and the CGT paid within 60 days of completion (previously 30 days, changed from 27 October 2021). The report is made through HMRC's Capital Gains Tax on UK Property online service.

Private Residence Relief (PPR) under TCGA 1992 s.222 exempts from CGT any gain made on the sale of a dwelling house that has been the taxpayer's only or main residence throughout the period of ownership: (1) THE BASIC PPR RULE — TCGA 1992 s.222: gain attributable to periods when the property was the taxpayer's main residence is fully exempt from CGT. The exempt fraction of the gain is: (months of main residence occupation) / (total months of ownership). A property that was always the main residence throughout the period of ownership generates nil CGT; (2) APPLYING PPR TO INHERITED PROPERTY: a beneficiary can claim PPR on an inherited property if they MOVE IN AND USE IT AS THEIR MAIN RESIDENCE after inheriting. The period of PPR begins when the beneficiary moves in as their main residence. The period before they moved in (from the date of death) is potentially chargeable — BUT the 9-month final period exemption (see below) reduces this substantially; (3) THE 9-MONTH FINAL PERIOD EXEMPTION — TCGA 1992 s.223(2): the LAST 9 MONTHS of ownership are always treated as a period of main residence — even if the property was not occupied during that period. This applies regardless of the reason for non-occupation in the final 9 months. The 9-month period was 18 months until April 2020 and 36 months for certain disabled persons and those in care homes; (4) PRACTICAL EXAMPLE — INHERITED PROPERTY WITH DELAY: deceased dies 01 June 2025. Probate completed; property transferred to beneficiary 01 November 2025. Beneficiary moves in as main residence 01 January 2026. Beneficiary sells 01 January 2028. Total ownership period (from date of death): 30 months. Months as main residence: 24 months (January 2026 to January 2028) plus 9-month final period already included within this (the final 9 months of 30 are January 2027 to January 2028, within the occupation period). Gap period: June 2025 to December 2025 = 7 months — this is potentially chargeable. Exempt fraction: 23/30 (months as main residence 24, but some overlap with final period — detailed calculation needed). In practice, for short periods of non-occupation before moving in, the 9-month final period rule often eliminates any CGT; (5) NO OCCUPATION — NEVER MOVED IN: if the beneficiary inherits a property, does not move in, and then sells it — no PPR is available (there is no period of main residence). The entire gain since the date of death is chargeable. This is the position for most properties sold through the probate process.

The 9-month final period exemption under TCGA 1992 s.223(2) is one of the most important reliefs for inherited property that is sold after a period of non-occupation: (1) THE RULE: the final 9 months of any period of ownership are always treated as a period of main residence — regardless of whether the taxpayer was actually living there. This exemption is automatic and does not depend on any election; (2) HOW IT BENEFITS INHERITED PROPERTY — EXAMPLE ANALYSIS: (a) Deceased dies; property passes to beneficiary (B) on 01 June 2024; (b) B never moves in; (c) B sells the property on 01 March 2026 (21 months after death); (d) Total ownership: 21 months; (e) Months as actual main residence: nil; (f) 9-month final period (deemed main residence): June 2025 to March 2026 = 9 months; (g) Exempt fraction: 9/21 = 43%; (h) Remaining chargeable gain: 12/21 × total gain; (3) ESTATES AND DELAYS: for inherited properties that take a long time to sell (e.g. complex probate; sale of the matrimonial home; contentious estate), the 9-month final period exemption provides meaningful CGT relief even for properties never occupied by the inheriting beneficiary. The key variable is the length of total ownership from the date of death to the date of sale; (4) EXTENDED FINAL PERIOD — DISABLED PERSONS AND CARE HOME RESIDENTS: the final period exemption is extended to 36 months (3 years) where the taxpayer: (a) is a disabled person within TCGA 1992 s.225E; (b) has taken up long-term residence in a care home. This extended period is important for estate administration of elderly beneficiaries who may have moved into a care home; (5) PERSONAL REPRESENTATIVE PERIOD — NO PPR: during the period of administration (i.e. while the property is still vested in the personal representatives, before it is assented to the beneficiary), the estate cannot claim PPR — the personal representatives are not using the property as a residence. Any gain arising during the administration period may be subject to CGT via the estate. However, the estate has its own CGT annual exempt amount (£3,000 in 2025-26) for the year of death and two subsequent years.

Letting relief (TCGA 1992 s.223B) provides an additional CGT exemption where a property that has been the taxpayer's main residence is later let out — but the rules were significantly tightened in April 2020: (1) PRE-APRIL 2020 LETTING RELIEF: before April 2020, letting relief was available where any part of the property that had at some point been the taxpayer's main residence was subsequently let. The relief was the LOWEST of: (a) the gain attributable to the let period; (b) the PPR exemption on the property; (c) £40,000. This was very generous and commonly used; (2) POST-APRIL 2020 REFORM — LETTING RELIEF NOW VERY LIMITED: from April 2020, letting relief is only available if the owner is IN SHARED OCCUPATION with the tenant at the time of letting — i.e. the owner and tenant are living together in the property at the same time. This dramatically reduces the circumstances in which letting relief applies. Standard buy-to-let arrangements (where the owner has moved out and the property is let as a separate dwelling) no longer qualify; (3) INHERITED PROPERTY AND LETTING RELIEF: for an inherited property: (a) if the beneficiary moves in as their main residence and lives there with the tenant (e.g. renting out a room), letting relief may apply to the let portion; (b) if the beneficiary has vacated and lets the whole property before selling, letting relief does NOT apply under the post-2020 rules; (c) the 9-month final period exemption applies to any property that was at some point the main residence — but not to a property that was never occupied; (4) PRACTICAL GUIDANCE FOR INHERITED PROPERTIES THAT WILL BE SOLD: if you inherit a property and intend to sell it without moving in: (a) no PPR; (b) no letting relief; (c) only the 9-month final period on the proportion since death; (d) annual exempt amount of £3,000; (e) CGT at 18%/24% on the net chargeable gain; (f) 60-day reporting obligation. Consider whether moving in before selling is beneficial — if the gain is likely to be large and the property could serve as your main residence, moving in establishes PPR for the period of occupation plus the 9-month final period, potentially eliminating CGT entirely.

Several strategies can reduce or eliminate CGT on an inherited property: (1) MOVE IN AS MAIN RESIDENCE: the most effective strategy is to make the inherited property your main residence. Once you have genuinely occupied it as your main residence for a period, PPR applies for that period plus the 9-month final period. If you occupy it for long enough (until the total non-occupation period falls within the 9-month final period), the entire gain may be exempt; (2) NOMINATING AS MAIN RESIDENCE — WITHIN 2 YEARS: if you own more than one property, you can elect which is your main residence for PPR purposes using an election under TCGA 1992 s.222(5). The election must be made within 2 years of acquiring the second property. For inherited property, this 2-year clock starts on the date of death (acquisition). A nomination election can maximise the PPR period for the inherited property (at the cost of reducing PPR on any other property owned); (3) USING THE ANNUAL EXEMPT AMOUNT: with an annual exempt amount of £3,000 per year per person, gains up to £3,000 per year are free of CGT. If the gain on the inherited property is modest, the annual exempt amount may cover it in full; (4) TRANSFERRING TO A SPOUSE BEFORE SALE: spouses and civil partners can transfer assets between each other on a 'no gain, no loss' basis (TCGA 1992 s.58). A transfer of part of the inherited property to a spouse before sale means each spouse uses their own annual exempt amount and basic rate band — potentially saving CGT. The recipient spouse takes over the original cost (probate value) for CGT purposes; (5) TIMING THE SALE: if you are likely to have a lower income in a future tax year (e.g. after retirement), timing the sale to fall in that year means the CGT may be taxed at 18% rather than 24%; (6) CAPITAL IMPROVEMENTS: any capital improvements to the property by the beneficiary (as distinct from repairs and maintenance) are added to the base cost and reduce the chargeable gain. Keep records of all capital expenditure.