Capital Gains Tax (CGT) and Estate Administration: What Executors Need to Know

When someone passes away, their Executors often need to deal with selling assets such as property, shares, or investments. One area that commonly causes confusion is Capital Gains Tax (CGT). The rules are similar to those that apply to individuals selling assets in their lifetime, but there are some important differences that can easily catch Executors out.

A common misconception is that CGT is based on what the deceased originally paid for an asset, which can be worrying if it was bought decades ago and has gone up a lot in value.

The good news is that there is a “free uplift” on death. This means that the starting point for CGT is the asset’s value at the date of death – not what was originally paid. Executors only pay CGT on any increase in value from the date of death to the date of sale.

Example: If the deceased bought a property for £100,000 in 1990, and it was worth £400,000 at the date of death, the estate’s base cost is £400,000. If Executors later sell it for £420,000, CGT is only payable on the £20,000 gain.

CGT only arises when the Estate actually sells an asset for more than its value at death. Importantly, there is no CGT liability when assets are transferred directly to beneficiaries – this is not treated as a disposal for CGT purposes.

This means Executors should consider whether it is better to sell assets themselves or to transfer them to beneficiaries, who can then use their own CGT allowances if they choose to sell later.

During their lifetime, people usually do not pay CGT when selling their main home because of Principal Private Residence Relief (PPRR).

For Executors, the rules are different. PPRR is only available if:

In practice, this usually only applies where the deceased owned the property with someone else who still lives there.

If PPRR does not apply and CGT is due on the sale of UK residential property, Executors must report the gain and pay any CGT due within 60 days of completion.

This is a strict deadline and applies even if the Estate’s overall tax return is not yet due. Failure to report and pay within 60 days can result in penalties and interest charges.

The 60-day rule does not apply to other assets such as shares or commercial property, which are reported on the Estate’s annual tax return.

Just like when selling in your lifetime, the Estate can deduct certain costs from the sale price before working out the taxable gain. These include:

If solicitors are handling the Estate administration, part of their fees can also be deducted.

Estates have the same annual CGT exemption as individuals – currently £3,000 for the 2024/25 tax year (much lower than in recent years).

Executors can only use this exemption in:

After that, the exemption is lost if assets are still unsold.

This means timing can be important. If possible, Executors should consider whether delaying a sale into a new tax year allows them to use another year’s allowance.

A useful tax planning tool is ‘appropriation’, where an asset is allocated to beneficiaries before it is sold.

This means the sale is treated as if it was made by the beneficiaries, not the Estate. Each beneficiary can then use their own CGT allowance in addition to the Estate’s allowance.

For example, if there are three beneficiaries, the gain can be spread across the allowances. This can significantly reduce the overall tax bill.

Appropriation must be done correctly and documented properly, so Executors should take advice before using this strategy.

CGT in Estate administration can be tricky, with rules that differ from those for individuals. Executors should always take professional advice before selling assets, especially where values have risen significantly since the date of death. This ensures that the Estate is managed properly and avoids unexpected tax bills.

If you are acting as an Executor and need guidance on CGT or any other aspect of estate administration, contact our Wills and Probate team for clear, practical advice.