When a rental property passes through an estate, the Capital Gains Tax position is built on a single statutory hinge: TCGA 1992 s.62. The personal representatives are deemed to acquire the property at its open-market value at the date of death, with no chargeable gain accruing to the deceased. That probate value is the CGT base cost for everyone downstream, whether the personal representatives sell during the administration period or assent to a beneficiary who later sells.
This page walks the calculation in detail with five worked examples. It is the calculation-side companion to our executor's step-by-step guide, which covers the operational sequence (probate valuation, IHT400, the grant, the administration period, the assent or sale decision, and the non-resident landlord handover). The wider CGT framework (rates, the annual exempt amount, the regime as a whole) sits in our CGT on UK property complete guide.
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The death-uplift: TCGA 1992 s.62 in plain terms
Section 62 of the Taxation of Chargeable Gains Act 1992 governs the CGT consequences of death. The two operative provisions are:
- s.62(1)(a): the deceased's assets "shall be deemed to be acquired on his death by the personal representatives or other person on whom they devolve for a consideration equal to their market value at the date of the death". The death is not a chargeable disposal by the deceased; the personal representatives acquire at that market value.
- s.62(4): on a subsequent transfer to a legatee (beneficiary) "no chargeable gain shall accrue to the personal representatives" on the assent. The beneficiary is treated as having acquired the asset at the personal representatives' acquisition value, i.e. the death-uplift value.
The practical effect is that any gain that built up during the deceased's lifetime is washed out at death. The CGT clock restarts at the date of death and runs against the death-uplift base cost. The legislation.gov.uk text of TCGA 1992 s.62 is the source of truth.
The term "stepped-up basis" appears in some commentary and is borrowed from US tax practice. The UK term is the death-uplift or uplift to market value at death, and the statute is s.62, not a US Internal Revenue Code provision. The mechanic is the same in substance; only the name differs.
Why the probate valuation drives the CGT calculation
The probate value the personal representatives put on the property at the date of death becomes the CGT base cost for every disposal that follows. Under-valuing to suppress Inheritance Tax can easily increase the eventual CGT by more than the IHT saved, particularly where the property is rising in value during the administration period.
HMRC's standard valuation for a single rental property is a RICS Red Book valuation at the date of death, prepared by a chartered surveyor, on a willing-buyer, willing-seller basis. Three rental-specific adjustments are routinely applied:
| Adjustment | Typical discount | Statutory or HMRC reference |
|---|---|---|
| Tenanted occupation (assured shorthold tenancy, sitting tenant, rent below market) | 10 to 15 per cent on the vacant-possession value | HMRC IHT manual; surveyor methodology |
| Regulated tenancy under the Rent Act 1977 (rare; pre-1989 stock only) | Substantially larger; case-by-case | Rent Act 1977 |
| Outstanding dilapidations and capital works | Cost-based deduction | RICS Red Book methodology |
| Co-ownership discount (deceased held as tenants in common) | 10 to 15 per cent on the proportionate freehold value | HMRC IHT manual; case law |
The valuation, the surveyor's report, the inspection date, and the assumptions are all recorded on Schedule IHT405 with the IHT400. Retain the valuation indefinitely; the same number is the CGT base cost when the property is eventually sold, which may be years later.
The PR-sale versus assent decision
The most consequential CGT choice on an inherited rental property is whether the personal representatives sell within the estate or assent the property to a beneficiary who then sells. The rate differential drives the bill.
| Who sells | CGT rate | Annual exempt amount | Capital losses available |
|---|---|---|---|
| Personal representatives during administration | 24 per cent throughout (s.1H, no basic-rate slice for trustees and PRs) | £3,000 per tax year for the year of death and the next two (s.3(7)); nothing thereafter | Losses arising on PR disposals; cannot use the deceased's brought-forward losses (lost on death) or the beneficiary's losses |
| Beneficiary after assent | 18 per cent on the slice that fits the beneficiary's unused basic-rate income tax band; 24 per cent on the remainder | £3,000 per beneficiary per tax year (each beneficiary has their own) | Beneficiary's own in-year losses and brought-forward losses (subject to normal compulsory in-year offset rules) |
The assent route generally wins where the beneficiary is a basic-rate taxpayer with unused band, where the beneficiary has capital losses to offset, or where there are multiple beneficiaries who each get their own annual exempt amount. The PR route generally wins where the property is to be sold immediately, where co-ordinating the assent with the sale would delay closing of the estate, or where the beneficiaries are all higher-rate taxpayers and the rate is 24 per cent either way.
HMRC's CG30810 and CG31130 cover the appropriation mechanic the personal representatives use to crystallise the assent. The appropriation is effective for CGT purposes from the date the personal representatives identify the property to the beneficiary, not from the Land Registry transfer date. Documentary evidence (the personal representatives' written resolution, the beneficiary's acceptance) supports the date used.
Worked example 1: personal representatives sell during administration
Marian dies on 1 May 2026 leaving a single Bristol buy-to-let to her estate. The RICS Red Book valuation at the date of death is £315,000 (after a 10 per cent tenanted-occupation discount on the £350,000 vacant-possession comparator). The personal representatives obtain the grant in October 2026, list the property in January 2027 after the tenant vacates, and complete the sale on 1 March 2027 for £340,000. Disposal costs are £6,800 (estate agent and legal fees).
Net disposal proceeds: £340,000 − £6,800 = £333,200
Base cost (death-uplift under s.62): £315,000
Chargeable gain: £333,200 − £315,000 = £18,200
Personal representatives' AEA for 2026/27 (year of death): £3,000 (s.3(7))
Taxable gain: £18,200 − £3,000 = £15,200
CGT at the PR rate of 24 per cent (s.1H): £15,200 × 24% = £3,648
The personal representatives file a 60-day CGT on UK property return by 30 April 2027 (60 days after the 1 March 2027 completion) and pay the £3,648. The gain is also reported on the SA900 trust and estate return for 2026/27.
Worked example 2: assent to a basic-rate beneficiary, who then sells
Same facts as Example 1, but the personal representatives appropriate the property to Marian's daughter Sophie by written resolution dated 1 December 2026 (before the sale process begins). The Land Registry transfer (form AS1) follows in January 2027. Sophie sells in her own name on 1 March 2027 for £340,000 with the same £6,800 disposal costs. Sophie's other income for 2026/27 is £32,000 (employment); she has no other capital gains and no losses brought forward.
Net disposal proceeds: £333,200 (as before)
Base cost (death-uplift, inherited under s.62(4)): £315,000
Chargeable gain: £18,200
Sophie's AEA for 2026/27: £3,000
Taxable gain: £15,200
Rate application:
- Basic-rate income tax band remaining for Sophie: £50,270 − £32,000 = £18,270
- Sophie's £15,200 taxable gain fits entirely within the basic-rate band
- CGT at 18 per cent: £15,200 × 18% = £2,736
The assent route saves £912 compared with Example 1 (£3,648 PR rate versus £2,736 beneficiary rate). The arithmetic widens as the gain grows: a £100,000 gain split the same way would save approximately £6,000 on the basic-rate band slice and rate differential. The saving disappears if Sophie is a higher-rate taxpayer with no basic-rate band to spare; both routes then run at 24 per cent.
Worked example 3: three beneficiaries, one property, sequential sales
Patrick dies on 1 June 2026 leaving a £450,000 Leeds buy-to-let to his three adult children equally. The death-uplift base cost per third is £150,000. The children agree the property will be sold and the cash split three ways. They face a decision: sell during administration (one PR transaction, one £3,000 PR AEA), or assent in thirds and each sell their share.
Assent-then-sell route. The personal representatives appropriate one-third to each child by written resolution and execute three AS1 transfers in November 2026. The children list the property jointly with vacant possession and complete a single combined sale on 1 May 2027 for £472,000 (gross), with £9,000 of disposal costs split equally.
Per child:
- Net proceeds: (£472,000 − £9,000) ÷ 3 = £154,333
- Base cost (death-uplift third): £150,000
- Chargeable gain per child: £4,333
- Less own £3,000 AEA: £1,333 taxable per child
- Two children are basic-rate taxpayers: £1,333 × 18% = £239.94 each
- One child is a higher-rate taxpayer: £1,333 × 24% = £319.92
- Combined CGT across the three: £799.80
If the personal representatives had sold the property directly, the £13,000 aggregate gain would have used one £3,000 PR AEA, leaving £10,000 taxable at 24 per cent (£2,400). The assent route saves approximately £1,600 by unlocking three annual exempt amounts and accessing the basic-rate slice on two of the three shares.
Worked example 4: inherited and kept as a let, sold five years later
Aamir inherits a Manchester buy-to-let from his late mother on 1 June 2025. The RICS death-uplift valuation is £260,000. Aamir is appointed beneficiary by assent on 1 January 2026 and continues to let the property. He spends £18,000 in 2027 on a loft conversion (capital improvement) and £2,500 in 2029 on a new boiler (HMRC accepts boiler replacement as revenue). He sells on 1 September 2030 for £370,000 with £8,500 of disposal costs. His 2030/31 income is £55,000 (higher-rate).
Net proceeds: £370,000 − £8,500 = £361,500
Base cost:
- Death-uplift (s.62): £260,000
- Loft conversion (capital improvement, added to base cost): £18,000
- Boiler replacement (revenue; claimed against rental income during ownership; not in base cost): £0
- Total base cost: £278,000
Chargeable gain: £361,500 − £278,000 = £83,500
Less Aamir's £3,000 AEA for 2030/31: £80,500 taxable
Rate application (higher-rate throughout): £80,500 × 24% = £19,320 CGT
Aamir files the 60-day CGT on UK property return by 31 October 2030 and pays the £19,320. The same disposal appears on his SA108 for 2030/31. The rental profits across 2026 to 2030 were declared on his Self Assessment in the usual way; the boiler cost was deducted against rental income in 2029/30 and is not available as a CGT base cost on disposal (the same expenditure cannot be claimed twice).
Detail on the capital-versus-revenue distinction sits in our step-by-step CGT calculation guide.
Worked example 5: non-resident beneficiary
Helena lives in Spain and inherits a £290,000 London flat from her late father in March 2026. She is non-UK resident under the Statutory Residence Test for 2025/26 and 2026/27. She lets the property under the Non-Resident Landlord scheme from the assent date (5 June 2026) and sells it on 1 April 2027 for £305,000 with £7,200 of disposal costs.
Net proceeds: £305,000 − £7,200 = £297,800
Base cost (death-uplift; the s.62 mechanic applies regardless of residence): £290,000
Chargeable gain: £297,800 − £290,000 = £7,800
Helena's AEA for 2026/27 (non-resident individuals retain the AEA in line with UK residents): £3,000
Taxable gain: £4,800
Rate application: Helena's UK income for 2026/27 is rental profit of £8,400 only (the property's net rents from June 2026 to March 2027). Her UK basic-rate band is £50,270 less any UK income; assuming she has no other UK income, the £4,800 gain fits within the basic-rate band remaining. CGT at 18 per cent: £4,800 × 18% = £864.
The 60-day reporting position is different for a non-resident. Under TCGA 1992 s.1A and Schedule 1A (the post-Finance Act 2019 architecture), Helena must file the 60-day CGT on UK property return for every UK land disposal regardless of whether tax is due. She files within 60 days of the 1 April 2027 completion and pays the £864 with the return. The same disposal is also reported on her Self Assessment.
The 5 April 2015 and 5 April 2019 rebasing dates that apply to non-residents who acquired UK property before those dates are irrelevant here: Helena did not acquire the property by purchase; she acquired it under s.62 on her father's death in March 2026 at the death-uplift value.
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The 60-day CGT on UK property reporting rule, correctly stated
The 60-day reporting rule is a frequent source of confusion on inherited-property disposals. The framing that appears in older guidance (an "if gain exceeds £6,000" threshold) is incorrect: £6,000 was an earlier annual exempt amount (the 2023/24 figure), not a reporting threshold. The current rules are:
- Personal representatives during administration: file the 60-day return where CGT is due after the £3,000 PR AEA and any reliefs. No filing if the gain is fully covered by the AEA, losses or PRR.
- UK-resident beneficiary after assent: file where CGT is due. Same threshold logic as any other UK-resident disposal of UK residential property.
- Non-UK-resident beneficiary after assent: file for every UK land disposal regardless of whether tax is due. This is the rule that catches most non-resident landlords by surprise.
The 60-day clock runs from the completion date, not the date of any earlier exchange. Late filing attracts a £100 fixed penalty from day 61, daily £10 penalties from day 91 (capped at £900), and £300 (or 5 per cent of tax if higher) at each of the six-month and twelve-month milestones. Interest on unpaid tax accrues from day 61. The full mechanics are in our 60-day CGT payment deadlines guide.
Private Residence Relief on an inherited rental property
PRR (TCGA 1992 s.222 to s.224) is available where a beneficiary occupies the inherited property as their only or main residence after the inheritance. The relief is on a time-apportioned basis over the beneficiary's period of ownership, which starts at the date of assent (or the date of death where the inheritance is by survivorship of joint tenancy), not at the date the deceased acquired the property.
The final nine months of ownership always qualify as deemed occupation provided the property was at some point a main residence (HMRC CG65040). A beneficiary who moves in for a meaningful period before selling can convert part of the gain to PRR-exempt status; HMRC CG64427 and the Goodwin v Curtis [1998] STC 475 line of cases set the standard for what counts as a main residence (council tax, electoral roll, personal correspondence, intention to occupy permanently or indefinitely). Token occupation for a few weeks before sale is not effective.
Letting Relief is restricted from 6 April 2020 under TCGA 1992 s.223B (inserted by Finance Act 2020): it only applies where the owner shared occupation with the tenant during a period of letting. A beneficiary who lets the property without ever sharing occupation cannot claim Letting Relief. The wider PRR mechanics sit in our PRR for landlords guide.
Deed of variation: redirecting an inheritance after the fact
A deed of variation under IHTA 1984 s.142, executed within two years of death, redirects the inheritance. The CGT side is governed by TCGA 1992 s.62(6): the variation is not itself a chargeable disposal, and the redirected beneficiary acquires the property at the s.62 death-uplift value. The deed must be:
- In writing, signed by the original beneficiary (and by the personal representatives where the variation increases IHT)
- Executed within two years of the date of death
- Include the IHTA s.142 election (for IHT read-back) and the TCGA s.62(6) election (for CGT read-back) where the parties want both effects
- For no consideration; payment in exchange for the variation destroys the s.142 read-back
There is no SDLT charge on the redirection (FA 2003 Schedule 4 paragraph 8). Deeds of variation are typically used to skip a generation (parent to child rather than spouse, with the spouse waiving), to qualify the estate for the Sch 1A 36 per cent charitable IHT rate, or to direct the property into a discretionary trust for protection from the next-generation beneficiary's creditors or divorce. The IHT-side mechanics sit in our IHT decision framework for property investors.
Capital-loss interactions
The deceased's brought-forward capital losses die with them. They cannot be inherited by the personal representatives or by a beneficiary, and they cannot be used to offset gains in the estate. Practitioners often check this against the deceased's prior-year Self Assessment returns before completing the IHT400, because a wasted brought-forward loss position is sometimes a signal to time gifting differently in lifetime.
The personal representatives' own in-year capital losses (arising on assets sold during administration at less than the death-uplift value) can be used against the personal representatives' in-year gains, including the inherited property if that is sold. Brought-forward losses can run between PR tax years.
The beneficiary's losses are the beneficiary's own. After assent, the beneficiary uses their own brought-forward and in-year losses against any chargeable gain on the inherited property. This is one of the angles the assent route opens up that the PR-sale route does not: a beneficiary with material brought-forward losses pays substantially less CGT than the personal representatives would on the same gain.
Annual exempt amount sequencing across three tax years
The personal representatives' AEA is available for the tax year of death and the two following tax years (TCGA 1992 s.3(7)). An estate with multiple disposals can sequence sales to use three AEAs rather than one. The arithmetic is most powerful for estates with several rental properties or a portfolio:
| Tax year of administration | PR AEA | Available? |
|---|---|---|
| Year of death | £3,000 | Yes |
| Year of death + 1 | £3,000 | Yes |
| Year of death + 2 | £3,000 | Yes |
| Year of death + 3 onwards | None | No |
An estate that sells two properties in the year of death and a third in the year of death + 2 secures three £3,000 AEA slices and saves up to £2,160 (3 × £3,000 × 24 per cent) compared with bundling all three disposals into year of death + 3 onwards. The reverse mistake (drawing administration out and losing the AEA window) costs the estate the same number.
IHT context and the cross-link to the executor's process
CGT sits on top of the IHT position, not under it. The death-uplift wipes out CGT on lifetime growth, but the same date-of-death value is the IHT-chargeable value. An estate that under-values the property to suppress IHT is increasing the eventual CGT on disposal by the same amount, often at a higher rate (IHT at 40 per cent on the marginal pound above the nil-rate band versus CGT at 24 per cent on the marginal pound at the PR rate, before any beneficiary-side band-stacking).
The wider IHT mechanics (NRB, RNRB, transferable allowances, BPR for landlord estates) sit in our IHT decision framework. The operational sequence the personal representatives follow (probate valuation, IHT400 versus excepted-estate route, the grant, the administration period, the assent or sale decision, NRL handover for non-resident beneficiaries) is in our executor's step-by-step guide. SDLT on the various probate property transfers (assent, beneficiary buyout, mortgage assumption) is covered in our SDLT on probate property transfers page.
Reporting and record-keeping
Records to retain through to the eventual disposal and beyond:
- The IHT400 and Schedule IHT405 with the RICS valuation report (the source of the death-uplift base cost)
- The grant of probate and the IHT421 receipt where IHT was paid
- The personal representatives' written appropriation resolution and the assent document (form AS1 or AS3) where the property was assented
- All invoices for capital improvements between inheritance and sale, with descriptions of work sufficient to evidence capital versus revenue
- Council tax bills, utility records, electoral roll entries showing any period of personal occupation (for PRR)
- Tenancy agreements and rent records showing any letting period (for the rental income side)
- The sale completion statement, sale legal and estate agent invoices, and the CGT computation worksheet
HMRC's standard retention period for business taxpayers (which includes most landlords) is five years and 10 months from the end of the tax year of disposal. Inherited-property disposals frequently happen years after the death, so the practical retention period is the longer of six years after disposal and indefinitely from the date of death for the IHT400 and probate valuation papers.
Where this fits in our wider inherited-property coverage
The CGT calculation on an inherited rental property is one element of a broader executor and beneficiary process that also includes IHT compliance, SDLT on the various probate property transfers, rental income tax during the administration period, and any non-resident landlord registration where a beneficiary lives abroad. Our companion pages walk those angles in detail:
- Inheriting a UK Rental Property: An Executor's Step-by-Step Guide, the operational sequence from date of death to closing the estate
- SDLT on probate property transfers, the five categories of probate transfer and the SDLT on each
- IHT decision framework for property investors, the wider estate-planning context
- CGT payment deadlines for UK property sales, the 60-day reporting mechanics in full
- CGT rates on residential property 2026/27, the rate-band-stacking arithmetic for the beneficiary-side calculation
Related life-event CGT pages: CGT on property transfers between spouses (where an inherited property is subsequently transferred to a spouse), and CGT on property transfers during divorce (where a separating beneficiary holds an inherited property).