What you need to know: CGT on inherited assets : the base cost reset
Quick answer: When you inherit a capital asset, your CGT cost basis becomes the market value at the date of death , not the original purchase price. This is the "base cost reset" or "uplift." If you sell the asset for the same value as the date of death, there's no CGT to pay…
Key points:
- Acquisition cost (for CGT purposes) = market value at the date of death.
- Acquisition date = date of death.
- If you sell at market value at the date of death, no gain, no CGT.
When you inherit a capital asset, your CGT cost basis becomes the market value at the date of death, not the original purchase price. This is the "base cost reset" or "uplift." If you sell the asset for the same value as the date of death, there's no CGT to pay — even if the original owner bought it for £1 in the 1970s. Only gains accruing after the date of death are taxable. This rule applies to assets in the estate; assets gifted within 7 years of death may have different rules under PETs.
The mechanic
For CGT on inherited assets:
- Acquisition cost (for CGT purposes) = market value at the date of death.
- Acquisition date = date of death.
- If you sell at market value at the date of death, no gain, no CGT.
- If you sell later for more, the gain is taxed at the standard CGT rate.
- If you sell later for less, you have a CGT loss (which can offset other gains).
This is "free" tax reset on accumulated lifetime gains. For an asset bought in 1980 for £1,000 and worth £100,000 at death, the deceased's £99,000 lifetime gain disappears for CGT purposes when you inherit.
Worked example: inherited shares
Father bought BP shares in 1985 for £8,000. He dies 2026. Shares now worth £125,000.
| Original cost basis (father's) | £8,000 |
| Market value at date of death | £125,000 |
| Your new cost basis | £125,000 |
| You sell six months later for £130,000 | |
| Your gain (£130,000 − £125,000) | £5,000 |
| Less £3,000 annual allowance | £2,000 taxable |
| CGT at 24% (higher rate) | £480 |
Had the deceased sold during their lifetime, CGT would have been on the £117,000 gain — approximately £27,840 at the same rates. The base cost reset saved £27,360 of CGT.
How it interacts with IHT
Inheritance Tax and Capital Gains Tax are separate. IHT is paid by the estate on the total value above the £325,000 nil-rate band (plus residence nil-rate band where applicable), at 40%. CGT is paid by the beneficiary when they later dispose of the asset, on gains after the date of death.
The base cost reset prevents "double taxation" — the same gain being charged to both IHT (as part of the deceased's estate) and CGT (when the heir later sells). The reset means CGT only catches gains arising after the asset entered the heir's hands.
This is why selling an inherited property within a year or two often results in minimal CGT — the only gain is the post-death market movement. The exception is rapid post-death property appreciation (e.g. London 2014–2016 type periods).
Special cases
Inherited property used as a main residence
If the inheritance is a property and you then use it as your only or main residence, Private Residence Relief applies to any gain accrued during your ownership-as-main-residence period. Combined with the base cost reset, your CGT exposure is usually nil.
Inherited property never lived in
If you inherit a property and rent it out or keep it empty, no PRR applies — but the base cost reset still does. Any gain since the date of death (e.g. holding for 5 years) is fully chargeable.
Inherited shares in an ISA
From April 2018, the inheritor of an ISA can use an "Additional Permitted Subscription" — equal to the value of the deceased's ISA at the date of death — to fund their own ISA without using their annual allowance. This preserves the tax-free wrapper for the value of the inherited ISA.
Inherited holiday-let business
Furnished Holiday Letting rules used to give CGT advantages on inheritance (entrepreneur's relief, business asset disposal relief). From April 2025, FHL was abolished — these reliefs no longer apply to FHL portfolios.
The "valuation" complication
The market value at the date of death is sometimes obvious (publicly listed shares, large residential property), sometimes contested (small unlisted companies, art, jewellery). HMRC accepts:
- Stock Exchange "quarter-up" valuation for listed shares.
- RICS surveyor valuation for property.
- Specialist valuation for art, antiques, intellectual property.
The valuation used for IHT is normally also used for CGT (they're meant to be consistent). Where IHT is nil (because the estate is below thresholds), the CGT value can be agreed with HMRC separately.
Deed of variation — redirecting inheritance
If an heir doesn't want the asset (e.g. they're already at IHT cap, want to direct to a child), they can execute a deed of variation within 2 years of death. The variation is read back as if the deceased had originally bequeathed to the substitute heir — no CGT and no IHT effects from the variation itself.
Common uses: passing inheritance to grandchildren (lower IHT in next generation), or splitting between charity and family members. See the inherited property SDLT guide for the property-specific picture.
Sources and methodology
The base cost reset rule is in section 62 of the Taxation of Chargeable Gains Act 1992. CGT rates and allowances above follow HMRC's 2026/27 published figures. See CGT on inheritance guidance. For complex estates or contested valuations, see the tax adviser recommendation. The methodology page documents sources.
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