Capital Gains Tax (CGT) is only payable when a gain on the sale of an asset is crystalised. On death therefore, as no sale has actually taken place CGT is not applicable. Instead, the asset is valued as part of the deceased probate and is subject to Inheritance Tax (IHT).

Beneficiaries inherit properties at the market value on death and the capital gain is therefore “washed out” in that when they come to sell the property their base cost will be the market value on inheriting.

Mr Jones has passed away and left his entire rental property portfolio to his only daughter Emily. Mr Jones originally paid a total of £500k for the properties. On death the properties were valued at £1.5m. Five years after inheriting, Emily decides to sell the entire portfolio and receives £2m. Her CGT will therefore be calculated on £500k (£2m less £1.5m).

Many landlords who own property in their personal name are increasingly aware that they have a choice of paying CGT on selling the properties whilst they are still alive or leave an IHT charge for their beneficiaries to administer on death. Given that the current CGT rates are 18%/24% compared with an IHT rate of 40% (after deduction of nil rate band allowances) the choice on what to do is not an easy one.

However, there are exceptional cases where the estate may need to sell an asset during the administration period, or where a sale was already in progress when the individual passed away. In these rare instances, CGT could potentially apply.

As the personal representative (e.g. executor or administrator) appointed after someone's passing, you are responsible for managing and reporting any income or capital gains that occur during the administration period - that is, between the deceased's death and the distribution of their estate to the beneficiaries.

Administration period

Upon a person's death, their estate's assets and liabilities are identified and valued. After paying off all pre-death debts and Inheritance Tax obligations, HMRC considers the administration period complete, and the personal representative can begin distributing the remaining assets to the beneficiaries.

The remaining assets will be distributed to the beneficiaries either as specified in the deceased's will or, in the absence of a will, according to the laws of intestacy.

CGT is not payable on the transfer of assets directly to the beneficiaries.

Capital gains on death

However, if the deceased disposed of assets before their death, CGT may be due. The personal representatives would need to reconcile the ongoing disposal if any tax had not been paid on death.

Alternatively, the personal representative may be liable for CGT if they sell or dispose of any assets in the estate that are not being passed to the beneficiaries.

If the estate incurs Capital Gains from disposals of estate assets that exceed the Capital Gains annual exempt amount (for the 2024/25 tax year this is £3,000), there will be CGT payable, and it will need to be paid to HMRC in conjunction with submission of a Trust and Estate Tax Return.

Even if there is no CGT payable, HMRC may require a tax return or disclosure of the gains.

For a simple estate, there is no need to file a Trust and Estate Tax Return. Instead, the estate can be settled by writing to HMRC at the end of the administration period. This informal method of declaration is commonly used for most estates.

If, as a personal representative, you dispose of UK residential property within the estate, you may need to report capital gains and pay any tax within 60 days of completing the transaction.