Capital gains tax (CGT) arises when a person disposes of an asset and makes a profit that is capital in nature.

However, when someone dies there is a CGT-free uplift in the value of all assets in the estate that are assessed to inheritance tax. Such assets are rebased for CGT purposes and so are 'acquired' by the personal representatives at the probate value without any CGT arising - even on assets that have appreciated considerably in value during the deceased's lifetime.

During the estate administration period, if a property or an asset is sold for more than the value at death, personal representatives may have a CGT liability. The calculation of tax is based on the net gain realised on sale, with the rate of tax being 20 per cent for most assets, but 28 per cent for residential property. Personal representatives have the same CGT-exempt allowance as the deceased, which for the 2021/22 tax year is £12,300. This is available for the tax year of death and the two subsequent tax years.

It may be necessary to complete an estate tax return or, if the gain is small, return the gain using the informal procedure (subject to HMRC's approval). A return may be required even if there is no CGT to pay. If there are capital losses that the personal representatives wish to use to stay within the CGT allowance, the personal representatives will have to report all of the gains and losses even if no CGT is payable.

Beneficiaries who inherit assets from the estate will receive them at their probate value. It is important that beneficiaries are informed of the acquisition values of assets they inherit, as they may be liable to pay CGT personally if they decide to dispose of the assets at a later date.

Any CGT liability that was payable because of disposals made before death will remain payable by the personal representatives and due to HMRC.