Inheritance Tax for Property – A Complete Guide

Oren Kander

At the heart of inheritance is the estate—the legal term for everything a person owns at the time of their death. This typically includes:

• Property (such as a house or land)
• Savings and investments
• Personal belongings

When you inherit a property as part of an estate, there are tax considerations to address. This guide focuses on the taxes you may encounter, helping you understand your obligations and make informed decisions.

One of the first steps is navigating probate, the legal process for administering the estate and transferring ownership. Once ownership is established, it’s essential to understand the taxes that may apply.

For some, the simplest option is to sell a house you inherited to free up funds or avoid the responsibilities of ownership. Others may consider companies that will buy any house fast, for cash, guaranteeing a quick and stress-free sale. Understanding your options will help you make the best decision for your circumstances.

Whenever a property is passed on as part of an estate, understanding the taxes involved is essential. From inheritance tax to capital gains tax and stamp duty, knowing what applies to your situation can help you manage the process smoothly. This guide will walk you through the key tax considerations for inherited property.

Do You Have to Pay Inheritance Tax on a House?

Many people wonder whether inheriting a house means paying hefty taxes. The good news is that Inheritance Tax (IHT) doesn’t always apply, and there are allowances to help reduce or even eliminate the tax owed.

In the UK, estates are only taxed if their value is over £325,000 (the Inheritance Tax threshold). Anything above this threshold is taxed at 40%. However, you may qualify for extra allowances:

• Residence Nil-Rate Band (RNRB): If the house was your parents’ main home and is being passed to children or grandchildren, an extra £175,000 can be added to the tax-free amount.
• Spousal Exemption: If the property is left to a spouse or civil partner, no IHT is due. Any unused tax allowances can also be transferred to the surviving partner.

Example: Let’s say the estate includes a house worth £500,000. With the combined £325,000 standard allowance and £175,000 RNRB, the entire amount could be exempt from IHT.

What About Capital Gains Tax on Inherited Property?

Paying Capital Gains Tax (CGT) on an inherited property might sound daunting, but it only comes into play under specific circumstances. When you inherit a property, you don’t pay CGT right away. However, if you decide to sell the property later and its value has increased since the time you inherited it, CGT may apply.

This means:

• If you keep the property and live in it as your main residence, CGT usually doesn’t apply when you eventually sell it. This is because of the Principal Private Residence Relief, which exempts your main home from CGT.

• If you sell the property or use it as an investment (e.g., renting it out), CGT could be due on any profit made from the sale.

Here’s how CGT works when selling an inherited property:

• The Probate Value: The property’s value is set based on the market at the time of inheritance. This is known as the probate value, and it becomes the baseline for calculating any potential gain.

• The Sale Price: If the property is sold for more than the probate value, the difference is considered the gain.

Example:

• Probate value of inherited house: £300,000
• Sale price: £350,000
• Profit (or “gain”): £50,000

You can reduce the gain by deducting costs like estate agent and legal fees. Everyone also has an annual tax-free allowance for CGT, which is £12,300 for the 2024/25 tax year. The remaining amount is then taxed.

For basic rate taxpayers, CGT on residential property is 18%. For higher-rate taxpayers, it’s 28%. By understanding how CGT works, you can better plan for any taxes owed if you decide to sell your inherited property.

Steps to Take When You Inherit a House

Inheriting a house comes with decisions to make and steps to follow. By understanding the process, you can handle the inheritance efficiently and with confidence. While the order can vary depending on your circumstances, the following steps provide a clear framework to guide you:

Value the Property

Getting the property professionally valued is a critical first step. The valuation helps determine its probate value (its market value at the time of inheritance), which is essential for: 

• Calculating Inheritance Tax (IHT), if applicable. 
• Establishing a baseline value for Capital Gains Tax (CGT) if you sell the property later.

You can use estate agents or chartered surveyors for this valuation. Make sure to keep records for tax purposes.

Apply for Probate

Probate is a legal process that gives the executor of the will the authority to manage the deceased’s estate. If there is a will, the named executor applies for probate. If there isn’t a will, an administrator (usually a close family member) will need to apply for letters of administration instead.

This step is necessary to:

• Access the deceased’s assets, including the property.
• Distribute the estate according to the will or intestacy laws (if no will exists).

You can apply for probate yourself or hire a solicitor to help. 

Pay Any Debts or Taxes

Before the property is legally transferred to you, any debts or taxes tied to the estate must be settled. These may include:

• Inheritance Tax (IHT): As discussed earlier, this only applies if the estate’s value exceeds the tax-free allowances.
• Outstanding Mortgages: If the inherited house has a mortgage, you’ll need to decide whether to pay it off, refinance, or sell the property.
• Utility Bills and Council Tax: Ensure any ongoing bills are paid to avoid accumulating arrears.

If the estate lacks the money to cover these costs, selling the property might be a practical solution. This is where Gaffsy can assist by making a free cash offer, purchasing your property in little as 7 days, ensuring that debts are cleared without delay.

Transfer Ownership

Once probate is granted and all debts are settled, the property can be transferred into your name. The legal title deed transfer is handled through the Land Registry in England and Wales or similar authorities in Scotland and Northern Ireland.

At this stage, you can decide how to manage the property:

• Live in It: Make it your main residence, which may exempt you from future CGT.
• Rent It Out: Generate an income, though you’ll need to declare this for tax purposes.
• Sell It: Selling can provide liquidity, which is especially useful if you need to divide the inheritance among family members or avoid ongoing maintenance costs.

For a hassle-free sale, Gaffsy can offer a cash purchase, allowing you to skip lengthy property chains and avoid extra fees like estate agent commissions.

What If You Want to Sell the Inherited Property?

Selling an inherited property can be a straightforward process when you know what to do. Here’s a step-by-step guide to help you through it:

Understand the Tax Implications

Before selling, be aware of the taxes that might apply:

• Capital Gains Tax (CGT): If the property’s value has increased since you inherited it, CGT might be due on the profit when you sell. You can reduce this by deducting selling costs (like estate agent fees) and applying the tax-free allowance.
• Inheritance Tax (IHT): If the estate is subject to IHT and hasn’t been settled yet, this may need to be addressed before the sale.

Knowing these taxes upfront can help you plan your finances effectively.

Decide How to Sell the Property

You have several options when selling:

• Traditional Sale Through an Estate Agent: This involves listing the property on the market. It can attract competitive offers but may take time.
• Auction Sale: A quicker option, but the final price may be lower than expected.
• Direct Sale to a Cash Buyer: Cash House buying companies like Gaffsy offer a fast, hassle-free way to sell inherited properties for cash. This can be ideal if you want to avoid delays or complications.

Prepare the Property for Sale

Whether selling through an agent or to a cash buyer, make sure the property is ready:

• Clear out any personal belongings.
• Tidy up the house and garden for a better first impression.
• Address minor repairs to increase the property’s appeal.

For a quicker sale, a cash buyer like Gaffsy will purchase the property as-is, saving you time, money and effort.

Handle Legal Requirements

Selling a property involves legal paperwork. You’ll need to:

• Confirm ownership is properly transferred to you through the Land Registry.
• Hire a solicitor or conveyancer to handle the sale process, including contracts and legal checks.

If you’re working with Gaffsy, our team can simplify this process for you by managing much of the paperwork.

Complete the Sale

Once a buyer is found, you’ll agree on a sale price and set a completion date. For traditional sales, this process can take weeks or months. With a cash buyer like Gaffsy, the process can be completed in as little as 7 days.

How is Inherited Property Split Between Siblings?

When siblings inherit a property together, it’s typically divided as tenants in common. This means that each sibling owns a specific share of the property, rather than owning it jointly as a single entity.  Each sibling’s share is legally theirs and can be sold, gifted, or passed on in their will independently of the others.

How Do Siblings Decide What to Do with the Inherited Property?

Once ownership is divided, the family must agree on what to do with the property. The most common options include:

• Sell the Property and Split the Proceeds

This is the simplest solution and allows each sibling to access their share of the inheritance in cash. For example, if the house sells for £300,000 and the siblings have equal shares, each would receive £100,000. If there are outstanding debts or taxes, these are typically deducted from the sale proceeds before distribution.

• One Sibling Buys Out the Others

If one sibling wants to keep the house, they can buy out the other shares. For example, if there are four siblings and the house is worth £300,000, the sibling who wants to keep the house would pay £75,000 to each of them.

• Rent Out the Property and Share the Income

The siblings can agree to keep the property and rent it out, sharing the rental income according to their ownership percentages. This option required ongoing cooperation for property management, repairs and tax filing which can be challenging if the siblings don’t live nearby.

Open and honest communication is key. Agreeing on a plan as a family can make the process smooth and fair for everyone involved.

Do You Need to Pay Stamp Duty on Inherited Property?

When you inherit a property, Stamp Duty Land Tax (SDLT) usually doesn’t apply. However, if you take on a mortgage or buy out someone else’s share of the house, SDLT might come into play.

When to pay Stamp Duty for Inherited Properties

Taking on a Mortgage
If the inherited property has an outstanding mortgage, SDLT applies to the value of the mortgage you take on. If this is your second home, the higher SDLT rate applies.


Example (Second Home):

• The house has a £300,000 mortgage, and you take it on.
• Standard SDLT: 5% on the amount above £250,000 (£300,000 – £250,000 = £50,000 → 5% = £2,500).
• Additional SDLT for second home: 3% on the entire £300,000 mortgage (£300,000 × 3% = £9,000).
• Total SDLT: £2,500 + £9,000 = £11,500.

Buying Out Someone Else’s Share
If you inherit a property with others and pay for their share, SDLT is based on the amount you pay. If the property is a second home, the higher SDLT rate applies.


Example (Second Home):

• You pay your sibling £200,000 for their share.
• Standard SDLT: None (it’s below the £250,000 threshold).
• Additional SDLT for second home: 3% on £200,000 (£200,000 × 3% = £6,000).
• Total SDLT: £6,000.

When not to Pay Stamp Duty or Inherited Properties

You don’t pay SDLT if:

• No money changes hands (e.g., you inherit the property outright without taking on a mortgage or buying out others).
• You don’t own any other property, so the second-home surcharge doesn’t apply.

Stamp Duty Check List for Inherited Properties 

If you’re inheriting a property, ask yourself:

• Am I taking on a mortgage or buying out someone else’s share?
• Do I already own another property?

If the answer to either question is yes, SDLT may apply. Speak with a solicitor or tax adviser for help and to clarify how much you’d owe.

If managing these costs feels overwhelming, selling the property could be a practical solution. Gaffsy specialises in buying inherited properties for cash, offering a quick, hassle-free way to move forward without added financial burdens.

Moving Forward with Confidence

Inheriting a house can feel like a fresh start. Whether you plan to live in the property, rent it out, or sell it, knowing your options helps you make informed decisions.

If selling feels like the right choice, Gaffsy is here to make it easy. We specialise in cash offers for inherited properties, so you can avoid delays and focus on what’s next. Contact us today on 02074594546 for a free no-obligation cash offer.