Dealing with the death of a loved one is one of life's most challenging experiences, and having to deal with the taxes on the deceased's estate only makes it more difficult. Benjamin Franklin's famous quote, 'The only certain things in life are death and taxes,' remains as relevant today as it was more than two centuries earlier; HMRC collects taxes even after one's passing away. While general taxes such as stamp duty land tax (SDLT) and capital gains tax (CGT) are not immediately payable, inheritance tax may become payable at a high rate of 40%.
In most cases, the person inheriting the property is responsible for handling the legal procedure and paying the tax. This includes applying for a probate, calculating the inheritance tax payable and paying the taxes. However, they may choose to elect someone else to do it instead. So, how does one apply for probate and how is the inheritance tax calculated? Let's explore.
Applying for Probate – The Process
Probate entitles someone with the legal right to deal with the deceased's property, money and possessions. The individuals to whom the right to administer the estate of the deceased is given depends on whether the deceased had a will. Individuals can apply for either online or through post. As the application by post takes longer to process, an online application through HMRC's website is recommended. For applications by post, follow the following procedure.
If the person who died had a will, the persons included in the will be able to apply for the probate. To do so, the willing executor should fill PA1P Citizen form to the following address:
HMCTS Probate,
PO Box 12625,
Harlow,
CM20 9QE
In the absence of a will and the executors, the closest living relative can apply for probate. The closest living relative is typically the spouse or civil partner and any children who are at least 18. Stepchildren, separated spouses, or civil partners are not eligible to become the administrator of the estate. Eligible relatives must fill out the PA1A Citizen form and send it to the same address as above.
If the closest living relative does not wish to apply for the probate, they can grant the 'power of attorney' to up to 4 people through the form PA12.
Along with the probate application, the applicants may also need to bear the cost of the application fee based on the value of the estate. For estates worth £5,000 or less, there is no fee for probate application. However, a fee of £300 is charged on the application of probates for estates worth over £5,000.
Once the probate application is reviewed and approved by the Probate Service, the applicant will receive either a 'grant of probate' or a 'letter of administration' depending on the form sent. Following that, individuals can start dealing with the estate.
Inherited Property Taxes
While there are no immediate taxes on Stamp Duty Land Tax (SDLT) or Capital Gains Tax (CGT), income tax and inheritance tax may apply. Income tax may be owed on interest earned from money after inheritance or dividends paid on inherited shares. HMRC will contact the persons liable to pay any tax.
These details will be included in the R185' Estate Income' form given by the executors or the estate administrators. The form will be used to calculate tax returns for the year through self-assessment tax returns.
Inheritance tax, however, is not included in the tax return. It is charged at 40% on the estate value of the deceased. The chargeable estate may be reduced by the nil rate band of £325,000. However, If the deceased has made any gifts in the last 7 years before death, the nil rate band may be further reduced, and more tax is payable. Additionally, if the estate contains a residential property that is left to the direct descendants of the deceased, a residential nil rate band (RNRB) of £175,000 becomes available.
Use our Inheritance tax calculator for swift computation.
If inheriting a property means that an individual now owns 2 houses, they must elect one to be their main residence and inform HMRC within 2 years of inheriting the property. The election of a main residence is crucial as it is only the main residence that will attract Private Residence Relief (PRR) in the future.
If the property is inherited from a trust, the recipient becomes the beneficiary, and the trustee, as the legal owner, is responsible for paying tax on any income the trust generates. In the case of bare trusts, the recipient assumes both the beneficiary and legal ownership roles and is responsible for any tax on the trust's income.
Selling an Inherited House
When any property is sold, the primary tax to consider for the seller is capital gains tax (CGT). It is typically calculated on the difference between sales proceeds and purchase price.
The capital gain in an inherited house is calculated as the difference between the sales proceeds and the value at which the inheritance tax is paid, aka the probate value. The resulting gain is subsequently taxed at the following rates:
Tax band | Other disposals | Residential Property Disposals |
|---|---|---|
Basic rate taxpayer | 18% | 18% |
Higher and additional rate taxpayer | 24% | 24% |
If the inherited property has been occupied as a main residence since the inheritance, PRR can be claimed, potentially making the chargeable gain nil.
For properties that are inherited overseas, explore our article on "Tax on Overseas Property".
An illustration of selling an inherited house:
Rick inherited a house in May 2010 and paid inheritance tax on the probate value of £100,000. He lived in it as his main residence for nine years until May 2019, when he moved to another property. He started letting out the original property from the time he moved out and eventually sold it in May 2024 for £300,000. His total income for the year 2024/25 is estimated to be £48,000; deducting the personal allowance gives him a taxable income of £35,430 (48,000-12,570).
His taxable gain is calculated as follows:
Sales Proceeds | 300,000 |
less: Probate value | -100,000 |
200,000 | |
less: private residence relief | -139,286 |
Gain after PRR | 60,714 |
less: annual exempt amount | -3,000 |
Taxable gain | 57,714 |
Capital gains tax liability: | |
2,270 at 18% [37,700-35,430] | 408.6 |
55,444 at 24% [57,714–2,270] | 13,306.56 |
Total CGT liability | 13,715.16 |
As Rick did not occupy the property as his main residence for the full ownership period, the private residence relief is restricted. The property was his main residence for 108 months in total. The remaining 9 months of the ownership period are also added to the relief, giving you a total of 144 months. Therefore, the gain eligible for the relief is calculated as follows:
Total ownership period | 168 months |
occupation period | 108 months |
Final 9 months | 9 months |
Gain eligible for PRR [117/168*200,000] | 139,286 |
Conclusion
Inheriting a house in the UK comes with significant responsibilities, particularly regarding legal procedures and taxes. While some taxes like SDLT and CGT may not be immediately payable, inheritance tax can be substantial.
It's essential to understand the probate process, the taxes involved, and potential reliefs like Private Residence Relief (PRR) to manage the inheritance effectively. Seeking professional advice can also help navigate these complexities and ensure compliance with HMRC regulations.
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