Capital Gains Tax on death

What is Capital Gains Tax?

Capital Gains Tax (CGT) is a tax on the profit made from selling an asset - such as property, shares, or other valuable items - that has increased in value. 

You only get taxed on the gain, not on the total received from the sale. 

Some assets are tax-free, and there’s an annual tax-free allowance of £3,000 applied to profits or increase in value. 

How does Capital Gains Tax (CGT) work after death? 

Capital Gains Tax does not apply at the time of death. When someone dies, their assets - such as investments and property - are revalued on the date of death. This means that any increase in value during their lifetime is effectively ignored. 

However, beneficiaries - anyone entitled to receive assets from an estate - who sell, gift or transfer inherited assets, may have to pay Capital Gains Tax on the profits made since the date of death. The precise amount of tax they pay is based on the size of the profit and their personal CGT allowance. 

It's important that beneficiaries keep a record of an asset's value at the date of death, as this becomes the 'base cost' for calculating future gains. 

Read more: How CGT works. 

CGT uplift upon death 

When someone passes away and leaves assets to their loved ones, those assets get revalued. The valuation is known as the 'Capital Gains Tax uplift on death'. If you sell assets you've inherited, CGT is only applied to an increase in value from the date of death. 

It's worth noting that if the person who has passed away sold assets in the same tax year, any CGT still owed should be settled as part of their estate. The executor, who is the person responsible for administering the estate of someone who has died, will need to have this paid before anything is passed on to the beneficiaries. 

CGT on inherited assets 

Capital Gains Tax can apply when you come to sell inherited assets like ISA monies, other investments and property. The rules differ slightly for each: 

Property

A beneficiary may have to pay inheritance tax on property they inherit. If the property is then sold, Capital Gains Tax may apply. But there are some allowable deductions to reduce the amount of tax due. It's best to get professional advice on this. Read more about reducing your Capital Gains Tax bill. 

Investments outside of an ISA

Investments that are not held in an ISA may be subject to CGT - but not right away. After death, these investments transfer to the beneficiary and are revalued. If they are then sold at a profit, tax may apply if they exceed the annual CGT allowance.