Inheritance and Capital Gains Tax: How They Interact

Inheritance tax and capital gains tax do different jobs. Inheritance tax is charged on the value of an estate when someone dies and is generally settled by the estate. Capital gains tax is charged on the profit when an asset that has grown in value is sold, and for an inherited asset that gain is usually measured from the value at the date of death, not the original purchase price (gov.uk, as at July 2026, subject to change).

People often assume a single "death tax" covers everything, but two taxes can touch the same asset at different moments. This guide explains why you do not usually pay capital gains tax on inheriting, how the date-of-death value works, what happens when you sell later, and the position for executors. It forms part of our wider Inheritance Tax Explained guide. Figures are current as at July 2026 and are subject to change.

Inheritance tax and capital gains tax: what is the difference?

They are separate taxes charged at different points. Inheritance tax looks at the total value of an estate on death and is generally paid by the estate, with a standard rate of 40% on value above the tax-free bands (gov.uk, as at July 2026, subject to change). Capital gains tax is charged on the profit when an asset is sold or given away, not on the act of inheriting itself (gov.uk, as at July 2026, subject to change).

Sources: gov.uk/inheritance-tax, gov.uk, capital gains tax rates and gov.uk, allowances, as at July 2026 and subject to change. The nil-rate band is frozen until the end of the 2030-31 tax year (5 April 2031) (gov.uk, as at July 2026, subject to change).

The date-of-death value and why it matters

When someone dies, their assets are generally treated as passing at their market value on the date of death, and that value becomes the starting point, or base cost, for any later capital gains calculation (gov.uk, HS282, as at July 2026, subject to change). This is why any gain built up during the deceased's lifetime is not usually taxed as a capital gain, and a beneficiary is generally taxed only on growth after the death.

Capital gains tax when you sell an inherited asset

Selling is the point at which capital gains tax can arise. If you later sell an inherited asset for more than its value at the date of death, the increase since then may be a taxable gain, after your annual exempt amount (gov.uk, as at July 2026, subject to change). For an inherited property that is not your main home, you must report and pay any capital gains tax within 60 days of selling (gov.uk, as at July 2026, subject to change).

Rates depend on your income and the asset. For 2026-27, individuals pay 18% on gains within the basic income tax band and 24% above it, while trustees and personal representatives pay 24% (gov.uk, capital gains tax rates, as at July 2026, subject to change). If an inherited home is your only or main residence while you own it, private residence relief may reduce or remove a gain, depending on circumstances (gov.uk, as at July 2026, subject to change).

How executors and estates handle both taxes

Personal representatives can face both. They generally settle any inheritance tax from the estate before distributing assets, and if they sell estate assets that have risen in value since the death, the estate itself may pay capital gains tax, with personal representatives charged at 24% on chargeable gains (gov.uk, as at July 2026, subject to change). A limited annual exempt amount can be available to the estate in the tax year of death and the following years, depending on circumstances (gov.uk, HS282, as at July 2026, subject to change).

Timing and valuation choices can matter, and they interact. The figure agreed for probate is generally the value that fixes the capital gains base cost, so getting valuations right at the outset helps both taxes line up. Because the interaction of inheritance tax, capital gains tax and any reliefs can be involved, many people choose to discuss an estate with a qualified professional, such as a solicitor, a STEP practitioner or an accountant. Understanding how trusts are taxed can also matter where assets pass into a trust rather than outright.

Inheritance and capital gains tax in Scotland and Northern Ireland

Both taxes are UK-wide, so the £325,000 nil-rate band, the 40% inheritance tax rate, and the capital gains rates and £3,000 annual exempt amount apply across Scotland, England, Wales and Northern Ireland alike (gov.uk and gov.uk, as at July 2026, subject to change). What differs is the surrounding succession law. Scotland has its own rules, including legal rights for a spouse and children, and uses confirmation rather than a grant of probate, which can affect how and when assets are dealt with. Where an estate touches more than one UK nation, it can be worth taking advice in each. For the wider picture, see our estate planning guide.

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