Inheriting a House: Capital Gains Tax, Rental Income and What Happens Next

Inheriting a property brings a set of tax and practical questions that are genuinely different from inheriting cash - particularly around Capital Gains Tax if you later sell it, and Income Tax if you rent it out in the meantime. It’s a different set of rules again from inheriting an ISA, where a surviving spouse can use the Additional Permitted Subscription to reshelter the money entirely tax-free (see our dedicated article on inheriting an ISA). Here’s what to expect.

The property’s value is ‘reset’ for tax purposes at the date of death

For tax purposes, an inherited property’s value is generally taken to be its market value at the date of death - known as the ‘probate value’ or ‘date of death value’. This becomes your new base cost for any future Capital Gains Tax calculation, regardless of what the person you inherited it from originally paid for it.

Capital Gains Tax if you later sell

If the property’s value has risen between the date of death and when you eventually sell it, you may owe Capital Gains Tax on that increase - currently at 18% on gains falling within your unused basic-rate band and 24% for higher and additional-rate taxpayers on residential property gains (following the October 2024 Budget rate rise), after your annual CGT exemption (£3,000 for 2026/27, see our dedicated Saving series article on this allowance). If the property was your only or main residence throughout your ownership, Private Residence Relief may reduce or eliminate this - but this typically doesn’t apply to an inherited property you don’t live in yourself.

Income Tax if you rent it out

If you (or the estate, before distribution) rent out an inherited property rather than selling it immediately, the rental income is taxable in the normal way - see our dedicated Mortgages series article on buy-to-let taxation for how Section 24 and the upcoming April 2027 property income tax rate rise apply, since an inherited rental property is treated the same as any other rental property for these purposes once you own it.

Multiple beneficiaries inheriting one property

If a property passes to several beneficiaries jointly (siblings inheriting a parents’ home, for example), decisions about whether to sell, rent, or have one beneficiary buy out the others’ shares need to be agreed between all parties - disagreements here are a common source of family conflict during estate administration, and getting professional advice on the options (including how a buyout would be valued and funded) early can help avoid this.

Stamp Duty implications if you already own property

Inheriting a property itself doesn’t trigger Stamp Duty Land Tax (SDLT is a tax on purchases, not inheritance) - but if you already own your own home and later buy an additional property while still owning the inherited one, the 5-point additional property SDLT surcharge (see our dedicated Mortgages series article on stamp duty) may apply to that new purchase, since owning an inherited property generally counts toward your total property ownership for this purpose. One exception: if you inherited a share of 50% or less (including any share held by your spouse or civil partner), it’s ignored for the surcharge for three years from when you became entitled to it.

Whether Inheritance Tax has already been paid on the property

Any Inheritance Tax due on the property is calculated and dealt with as part of the overall estate administration, usually before you receive the property (though IHT on property can be paid in instalments over 10 years) - this is separate from, and doesn’t reduce, any Capital Gains Tax that might be due later if you sell it, since IHT and CGT are entirely separate taxes applying at different points.

Practical steps after inheriting a property

• Get a professional valuation at the date of death, even if you don’t plan to sell immediately - this figure is essential for both the IHT calculation and your future CGT base cost, and is much harder to establish accurately years later.
• Decide early whether to sell, rent, or keep the property, since each path has different tax and practical implications.
• Keep records of the date-of-death valuation and any subsequent costs (renovations, for example, which can sometimes be added to your CGT base cost) for whenever you eventually sell.
• Consider the ongoing costs - mortgage (if any remains), insurance, maintenance - of holding an inherited property while decisions are made, since these don’t pause simply because probate is ongoing.

The bottom line

Inheriting a house resets its tax base cost to the date-of-death value, meaning Capital Gains Tax only applies to growth after that point if you later sell, while renting it out in the meantime brings the same Income Tax rules as any other rental property. Getting an accurate valuation at the date of death is the single most important step for managing the tax implications correctly, whichever path you choose.