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.

Step-up in value on death

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.

Selling the family home

During their lifetime, people usually don’t 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:

• The property was the main residence of at least one person immediately before and after the death;
• That person is entitled to at least 75% of the sale proceeds; and
• The personal representatives make a claim for private residence relief.

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

If PPRR doesn’t apply, Executors must report the gain and pay any CGT due within 60 days of completion.

Deductible costs

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:

• Estate agent and conveyancing fees
• Mortgage redemption costs
• Broker fees

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

Annual CGT allowance

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:

• The tax year of death, and
• The following two tax years.

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

Appropriation – using beneficiaries’ allowances

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.

Taking professional advice

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.