Will I pay Capital Gains Tax when selling inherited assets?

Inheriting assets after a loved one passes away can be life-changing.

While it is often a bittersweet experience, as it usually comes after saying goodbye to someone close to you, this windfall may enable you to retire, boost your savings, or simply live a more comfortable life.

One topic we often discuss at length with regards to inheritance is, of course, Inheritance Tax (IHT). You may have experienced paying an IHT bill if you have acted as the executor of a person’s estate in the past, or anticipate that your family may need to pay it after you pass away.

However, one less-discussed tax you may face when inheriting wealth is Capital Gains Tax (CGT).

In this article, you will find out:

• Some scenarios in which you may need to pay CGT on inherited assets
• How much you could be liable to pay
• How we can help.

Keep reading to learn more.

If you sell assets after inheriting them, this could incur a Capital Gains Tax bill

CGT is levied on some profits you receive when selling certain assets. It is levied at a rate of 18% for basic-rate taxpayers and 24% for higher- and additional-rate taxpayers.

Usually, you would pay CGT on gains made from the sale of:

• Properties that aren’t your main residence
• Belongings worth more than £6,000, excluding your car
• Business assets
• Shares that aren’t held within an ISA.

So, it stands to reason that if you inherited assets such as any of the above, you could pay CGT when selling them. This is particularly pertinent if you already own a home and inherit someone else’s home, which would then count as a second property for tax purposes.

Similarly, if you inherit shares in a business or a collection of valuable belongings, such as artworks or jewellery, selling them could incur CGT.

However, the rules differ slightly to the normal disposal of assets, and this may work in your favour.

An example of how paying CGT on an inherited asset might work

The most important rule to remember here is: you only pay CGT on gains. Imagine that you bought a second home for £100,000 and sold it for £200,000. The gain of £100,000 may be liable for CGT, minus any available reliefs (more on this later).

As it stands in the 2025/26 tax year, CGT would only be due when selling an inherited asset if the asset rises in value between the time you inherited it, and when it is sold.

Here’s an example.

Your mother passes away and leaves you her home, which is valued at £400,000 on the day the deed is transferred to your name. You already own a home, so her home counts as a second property.

You have already paid IHT on her estate and are now left to decide what to do with her home, which needs modernising.

Scenario 1

Instead of renovating the home yourself, you decide to put it on the market as it is. It sells six months later for £400,000, the amount at which it was originally valued.

Outcome

You receive a £400,000 windfall without paying a penny in CGT.

Scenario 2

You decide to renovate the property to increase its value before putting it on the market. This costs you £100,000 and leaves the home in an improved condition.

Your mother’s property sells for £600,000.

Outcome

Your £200,000 gain is potentially liable for CGT. You might be able to subtract the Annual Exempt Amount of £3,000 provided you haven’t already used it in that tax year – more on this further down.

If so, you pay £47,280 in CGT. Your windfall, after the original renovation outlay, is £452,720.

The same rules apply to shares outside of an ISA, which can fluctuate in value much more unpredictably and more quickly than property. Similarly, business shares could incur CGT. Speak to a professional if you have inherited assets of this nature and need bespoke advice.

Certain tax breaks and allowances may reduce your bill

Fortunately, several tax breaks exist to help investors and asset holders sell up tax-efficiently.

For example, if you inherited business shares worth £750,000 and sold them for £1 million two years later, you could benefit from a reduction to the amount of CGT you pay:

• Your Annual Exempt Amount would be applied, if you hadn’t already used it within that tax year, and assuming no previous losses could be offset against your bill. So, your £250,000 taxable gain would be reduced to £247,000.
• BADR would then come into play, reducing your CGT bill from 24% (if you are a higher-rate taxpayer) to 14%.
• All in all, you would likely pay £34,580 in CGT, as opposed to £60,000 if no reliefs were available.

Remember, your circumstances are unique, so for a personalised illustration of how much CGT you may pay, contact your Kellands planner today.

Your Kellands financial planner can help you form a tax-efficient strategy

If you have inherited a combination of cash, property, shares, or business assets – or one of these – we can help you figure out your tax position and proceed efficiently.

What’s more, our experts will form a long-term relationship with you, meaning you can benefit from ongoing advice, support, and peace of mind.

Contact your financial planner today to find out more.

If you aren’t already a client with Kellands, email us at hale@kelland.co.uk, or call 0161 929 8838 to find out more.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Kellands financial planners are not responsible for any advice obtained from a legal professional and operate independently from these services.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning or estate planning.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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