Inheritance Tax vs Capital Gains Tax: What Happens When Someone Dies
Inheritance Tax and Capital Gains Tax are often confused, because both can touch the same assets. They are different taxes, charged at different times, on different things. The key fact: death itself is not a Capital Gains Tax event. Inheritance Tax is charged on the estate at death; Capital Gains Tax only arises if a beneficiary later sells an inherited asset for more than its value at the date of death.
In short
There is no Capital Gains Tax on death: inherited assets are treated as acquired at their market value on the date of death, so the gain built up during the deceased's lifetime is wiped out. Inheritance Tax is charged at 40% on the value above the available bands, paid by the estate. Capital Gains Tax only arises later, if a beneficiary sells for more than the value at death — at 18% or 24% for individuals in 2026/27, with a £3,000 annual exempt amount.
Two different taxes
Inheritance Tax is charged on the whole of a person's property when they die, subject to exemptions and reliefs, and it is paid by the estate at 40% on the value above the available bands. Capital Gains Tax is charged on the gain when an asset is sold — the difference between what it was bought for and what it was sold for. The two taxes do not both apply to the same event: there is a charge to Inheritance Tax on death, so there is not a charge to Capital Gains Tax as well.
No Capital Gains Tax on death — and the uplift
Death is not an occasion of charge to Capital Gains Tax: there is no deemed disposal on death, and the executors are deemed to acquire the property at the market value at the date of death. If assets pass to legatees, there is no Capital Gains Tax charge on the executors, and the legatees are treated as having acquired the assets at the date of death at market value. This is the "uplift": the gain that built up during the deceased's lifetime disappears, and the beneficiary's starting point for Capital Gains Tax is the value at death, not what the person who died originally paid.
Capital Gains Tax later, on a sale
Capital Gains Tax only arises if a beneficiary later sells an inherited asset for more than its market value at the date of death. For individuals in 2026/27 the rates are 18% on gains within the unused basic-rate band and 24% above it; personal representatives and trustees pay 24%. The annual exempt amount is £3,000 for individuals in 2026/27. UK residential property sales must be reported and the tax paid within 60 days of completion in most cases.
Lifetime gifts are different
A gift during life — other than to a spouse, civil partner or charity — is generally a disposal at market value for Capital Gains Tax, and the recipient's base cost is the value at the date of the gift. The death uplift does not apply to assets given away during life. So a gift that escapes Inheritance Tax after seven years can still trigger Capital Gains Tax at the time it is made. The 7-year rule guide covers the Inheritance Tax side; this is the Capital Gains Tax side of the same decision.
Private Residence Relief is a lifetime rule
A person's main home is usually covered by Private Residence Relief, so there is no Capital Gains Tax on the gain when it is their main home. But that is a lifetime-disposal rule, not a death rule — the two must not be confused. On death, the home is covered by the uplift described above, and any Inheritance Tax on it follows the property and thresholds guides.
Related guides
Sources: HMRC Capital Gains Manual CG36300; GOV.UK, How Inheritance Tax works: thresholds, rules and allowances; GOV.UK, Capital Gains Tax rates and allowances; GOV.UK, Tax when you sell property.