Let’s face it—talking about inheritance isn’t always easy. But understanding how tax plays into it, that’s a conversation worth having. Whether you have recently inherited property or you're planning your estate, knowing how UK tax laws affect beneficiaries can save you a lot of money and confusion down the road.

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In this post, we’re diving into two of the most common questions:

_{• Do beneficiaries pay tax on inheritance in the UK?}

_{• Is Capital Gains Tax payable on inherited property?}

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Let’s break it down in simple, smart terms—no jargon, no waffle, just the facts (with a bit of friendly guidance thrown in).

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Do Beneficiaries Pay Tax on Inheritance in the UK?

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Short answer: Not usually—but there's a twist.

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In the UK, beneficiaries typically don’t pay tax on the inheritance they receive. That’s because Inheritance Tax (IHT) is charged to the estate of the deceased, not to the person receiving the gift.

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Here’s how it works:

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• The estate (everything the deceased owned) is valued at death.

• If it’s worth more than the Inheritance Tax threshold (currently £325,000), the estate may be liable to IHT at 40% on the amount over that threshold.

• This tax is paid before any assets are distributed to beneficiaries.

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There are some key exceptions and reliefs worth knowing:

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• Spouses and civil partners usually inherit tax-free.

• The Residence Nil Rate Band (RNRB) can increase the threshold if a main home is passed to children or grandchildren.

• Certain gifts given within 7 years of death may also be subject to IHT (this is where the "gifts with reservation" and "taper relief" rules come in).

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Smart tip: Always check if the estate has used available exemptions and reliefs. A well-structured estate plan can significantly reduce IHT.

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What About Capital Gains Tax on Inherited Property?

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Now, here’s where things get a bit trickier—and more relevant if you plan to sell an inherited property.

Inheriting the property? No CGT.

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Selling it later? That’s when Capital Gains Tax may apply.

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When you inherit a property, you do not pay Capital Gains Tax at the time of inheritance. However, if and when you decide to sell that property, CGT might come into play—and here’s how it works:

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1. The “Base Cost” Reset

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You don’t inherit the original purchase price from the deceased. Instead, your “base cost” for CGT purposes is the market value of the property at the time of death.

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Let’s say: your parent bought a house in 1990 for £75,000. At the time of their death in 2024, it’s worth £350,000. You inherit it at that £350,000 value. If you sell it a year later for £400,000, your capital gain is only £50,000, not £325,000.

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2. Calculating the Tax

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You get a CGT annual allowance (currently £3,000 as of 2025). The remaining gain is taxed at:

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• 18% or 28%, depending on your income bracket and whether the gain is from residential property.

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Smart tip: If you lived in the property as your main residence, you may qualify for Private Residence Relief—which can reduce or eliminate your CGT bill.

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How Can You Minimise These Taxes?

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The good news? There are several smart ways to reduce or even avoid tax burdens—legally, of course.

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For Inheritance Tax:

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• Use trusts or gifting strategies.

• Make full use of nil-rate bands.

• Seek estate planning advice early—don’t wait.

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For Capital Gains Tax:

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• Sell at the right time (e.g., stagger sales to make use of annual allowances).

• Offset allowable expenses like solicitor or estate agent fees.

• Use losses on other assets to reduce taxable gains.

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Pro tip: Speak to a tax adviser before selling inherited property—planning ahead can help reduce your tax liability significantly.

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Frequently Asked Questions (FAQs)

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1. Do beneficiaries pay tax on inheritance in the UK?

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No, beneficiaries typically don’t pay tax on what they inherit. In the UK, Inheritance Tax is charged to the estate of the deceased, not the person receiving the inheritance. So, once the estate settles the tax (if any is due), beneficiaries receive their share tax-free. However, if you later sell assets like property, other taxes—like Capital Gains Tax—might apply.

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2. Is Capital Gains Tax payable on inherited property in the UK?

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Not when you inherit it—but yes, possibly when you sell it. You don't pay CGT at the time of inheritance. But if you later sell the property and it has increased in value since the date of death, you may owe CGT on the gain. Always calculate the gain based on the property’s market value at the date of inheritance, not what the deceased originally paid.

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3. How is the Inheritance Tax threshold calculated in the UK?

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The standard Inheritance Tax threshold is £325,000. If the total value of the estate is below this, there’s no tax due. However, if the deceased passed on their main home to children or grandchildren, they may also benefit from the Residence Nil Rate Band, which could increase the threshold by up to £175,000—meaning up to £500,000 could be tax-free in total.

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4. What happens if I sell an inherited house in the UK? Will I pay tax?

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If the house has increased in value since you inherited it, you may owe Capital Gains Tax when you sell. You’ll be taxed on the profit (the difference between the value at the time of inheritance and the sale price), minus any allowances and deductible expenses. The rate could be 18% or 28%, depending on your income and whether the property was your main residence.

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5. How can I avoid or reduce Inheritance Tax in the UK?

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There are several legal ways to reduce your estate’s Inheritance Tax bill:

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• Make use of annual gift allowances

• Place assets in a trust

• Leave everything to a spouse or civil partner

• Leave 10% or more of your estate to charity

• Plan well in advance—gifts made more than 7 years before death are generally exempt

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Professional tax planning can save your family tens of thousands of pounds in the long run.

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6. How can I reduce Capital Gains Tax when selling inherited property?

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Good news: there are a few ways to reduce your CGT liability:

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• Use your CGT annual allowance (currently £3,000)

• Deduct legal, selling, and improvement costs

• Offset capital losses from other assets

• Check if you qualify for Private Residence Relief if you lived in the property

• Consider selling in different tax years or jointly with others to use multiple allowances

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Conclusion: Don’t Leave It to Chance—Plan, Ask, and Optimise

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Receiving an inheritance should be a time of reflection and planning—not tax stress. While Inheritance Tax is usually paid by the estate, Capital Gains Tax can catch you out later if you’re not prepared.

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The key takeaway? Beneficiaries rarely pay tax on what they inherit at the moment of receiving it—but what you do after can create a tax liability. Selling inherited property? That’s where CGT rules apply.

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At Xenith Wealth, we help clients across the UK navigate these matters every day. Whether you’re inheriting a property or planning your own estate, we’re here to help you make tax-smart decisions with confidence. Contact Us.