How to Handle Inheritance Tax When Selling a Property
Dealing with the estate of someone you’ve lost is hard enough without having to navigate a complex tax system at the same time. If the estate includes a property, there are real tax implications to understand – and some important deadlines to be aware of.
This guide explains what you need to know in simple-to-understand terms, including the rules that changed in 2025 and 2026.
The two inheritance taxes you need to know about
When selling an inherited property, there are two separate types of tax involved: Inheritance Tax and Capital Gains Tax. Here’s what you need to know:
Inheritance Tax (IHT)
Inheritance Tax (IHT) is charged on the total value of the estate at the date of death. It’s calculated based on what the deceased owned when they died, not what the property later sells for.
Capital Gains Tax (CGT)
Capital Gains Tax (CGT) may apply separately if the property increases in value between the date of death and the date of sale. So, if the property was valued at £300,000 when the person died but sells for £340,000 two years later, CGT could be due on that £40,000 gain. It’s worth speaking to a solicitor or tax adviser about this early, as the rules around CGT on inherited property have their own nuances.
How Inheritance Tax works
So, what do you actually need to pay? Inheritance tax has many intricacies depending on you and your relationship to the original owner of the property.
Generally, IHT is charged at 40% on the value of the estate above the nil-rate band, which is set at £325,000 for 2025/26. This threshold has been frozen at this level since 2009, and is due to remain at £325,000 up to and including 2030/31.
If the deceased owned their home and left it to their children or grandchildren, there’s an additional allowance called the Residence Nil-Rate Band (RNRB). This is an additional property allowance of £175,000 in the tax year 2025/26, meaning an individual could pass on assets worth up to £500,000 tax-free. This rate is currently fixed until April 2028.
For married couples and civil partners, any unused allowance can be transferred between spouses on death, meaning up to £1 million can be passed down free of inheritance tax.
For estates worth more than £2 million, the Residence Nil-Rate Band is reduced by £1 for every £2 the estate exceeds the threshold. In 2025/26, if an estate is worth £2.4 million or more, the entire Residence Nil-Rate Band is lost.
When does Inheritance Tax have to be paid?
IHT is usually paid by the estate executor, before assets are distributed to beneficiaries. It must be paid to HMRC within six months of the date of death. After that point, interest will be applied at 7.5% to 9% (as of early 2026).
Importantly, you cannot sell the property until you have a Grant of Probate, and probate is only issued after at least some IHT has been paid. This can create a practical problem: you may need to sell the property to pay the tax, but you can’t sell the property until some tax has been paid.
What if you can’t pay the tax upfront?
If you can’t pay the inheritance tax upfront, you have options. This is a common situation, and HMRC has provisions for it.
Options include:
Direct Payment Scheme (DPS)
HMRC can be paid directly from the bank accounts of the deceased. This can help release funds without requiring the estate to find cash from elsewhere.
Instalment plan
IHT on property can be paid in up to 10 annual instalments rather than as a single lump sum. This means you can keep the property while gradually paying down the tax. However, if the property is sold during this period, the full remaining balance becomes due immediately.
Probate on credit
In rare circumstances, where you can demonstrate that it is genuinely impossible to pay the tax without first selling the property, HMRC may issue a probate on credit. The full amount is then repaid from the proceeds of the sale.
What changed with Inheritance Tax in 2025 and 2026?
You may have heard about recent property tax changes. There have been two significant changes following the Autumn 2024 Budget and the 2025 Budget. They are:
Agricultural Property Relief and Business Property Relief capped from April 2026
Previously, qualifying agricultural land and family businesses could attract 100% relief from IHT, meaning they were passed on without the need to pay tax. However, from April 2026, that 100% relief is capped at the first £1 million of combined qualifying assets. Once the assets are above this threshold, the relief is applied at 50%, rather than 100%.
So what does this mean in real terms? For most residential estates, there will be no impact. The main properties that will be affected are larger farms and family businesses. However, if the inherited estate includes agricultural land or business assets, it’s worth seeking specialist advice on how the cap applies to you.
Pension pots included from April 2027
Currently, inherited pension funds are not counted for IHT purposes. But from April 2027, inherited pensions will be included in the estate for IHT calculations. While this doesn’t affect property sales directly, it could change the overall IHT liability of larger estates, so it is worth factoring into any estate planning now.
Thresholds remain frozen
The nil-rate band (£325,000) and the Residence Nil-Rate Band (£175,000) are both frozen until at least 2030. With property values continuing to rise in many parts of the UK, this means more estates could be liable for IHT simply due to house price growth.
Practical steps when selling an inherited property
We know this process can feel overwhelming, especially when you’re dealing with it alongside everything else that comes with losing someone. Here are the key steps to take when selling an inherited property, broken down as simply as we can.
- Get a formal valuation. A RICS-accredited surveyor can provide an independent valuation that HMRC will accept. The valuation at the date of death determines your IHT liability, and an accurate figure can prevent disputes later.
- Get a solicitor early. The conveyancing and probate process involves several stages. The sooner your solicitor is involved, the smoother the process tends to be.
- Account for both taxes. Make sure your solicitor or tax adviser has assessed both IHT and any potential CGT liability. Banks typically release funds two to four weeks after completion – so don’t spend what you haven’t received.
- Seek professional advice. The rules around reliefs, exemptions, valuations and payment timelines are genuinely complex. A solicitor or specialist tax adviser can identify any allowances you might miss, and their fees are generally a fraction of what an unplanned tax bill could cost.
Can you sell an inherited property to a cash house buyer?
Yes – and at Good Move, it’s something we’re well versed in. A significant number of the properties we buy come to us through exactly this situation, so we understand the pressures involved: the probate timeline, the IHT deadline, the family dynamics, and the simple need to get things resolved without added stress.
Selling to a cash buyer removes a lot of the uncertainty that comes with the open market. There’s no chain, no risk of a buyer pulling out, and no estate agent fees to account for. We buy directly and can complete in as little as two weeks, which can make a real difference when you’re working against the six-month IHT deadline and need to sell quickly.
Your legal costs are covered as part of the sale, and our team is used to working alongside solicitors and executors to make the process as straightforward as possible.
Selling through Good Move will typically return less than the open market value – but for many people managing an estate under time pressure, the certainty can be worth it. For more information on the selling process, visit our page on How to Sell an Inherited Property.
This guide is intended as general information only, with information correct as of February 2026. For advice specific to your situation, please consult a qualified solicitor or tax adviser.
