Capital Gains Tax
Capital Gains TaxMerranti

Selling Assets from an Estate: How to Avoid an Unnecessary Capital Gains Tax Bill

When someone passes away, it’s not just about sorting through paperwork and dividing up what’s left behind. There are also important tax decisions that need to be made—especially when it comes to selling estate assets and passing cash to beneficiaries.

One key area that often catches families off guard is capital gains tax (CGT). While most people are aware of inheritance tax (IHT), far fewer realise that the estate may owe CGT if assets are sold before they are passed to the beneficiaries.

Let’s break this down into what you need to know—and how smart timing could reduce your tax bill by thousands.

What Is an “Estate in Administration”?

This is the legal term for the period between someone passing away and their estate being finalised (called “the residue being ascertained”).

During this time, the personal representatives (often executors named in the will) take control of the assets, pay off any debts and taxes, and prepare to distribute what’s left.

Here’s the key point: income and capital gains made during this period can be taxable. These taxes aren’t based on what the deceased person owned at the time of death, but on what happens with the assets afterward—especially if something is sold and its value has gone up.

Who Pays the Tax?

The personal representatives (PRs) are responsible for:

  • Calculating any tax due (including capital gains)

  • Paying it to HMRC

  • Deducting it from the estate before passing the rest to the beneficiaries

If the estate is relatively small (less than £2.5 million and under £10,000 of tax due), there’s even an informal option for settling the tax without a full self-assessment return—but this doesn’t apply in all cases.

Understanding Capital Gains Tax (CGT) in This Context

If the estate sells an asset (like shares or a second property) for more than it was worth at the time of death, then a capital gain has occurred—and this might be taxed.

Here’s how CGT on estate assets works:

  • Assets are “revalued” at the date of death. This becomes their new “base cost”.

  • If the PRs later sell the asset for more than this value, the estate pays CGT on the gain.

  • A small annual CGT exemption is available: £3,000 per year, for the year of death and the following two tax years.

  • Sales of residential property must be reported to HMRC within 60 days of completion.

The Timing Trap: Who Should Sell the Assets?

This is where things get interesting—and where many estates pay more tax than they need to.

Let’s say you’re acting as an executor and you know the beneficiaries just want cash. You might think it’s easiest to sell everything in the estate, pay off any tax, and distribute the money. But depending on the type of assets, it may be smarter to transfer the assets to the beneficiaries first—then let them sell them personally.

Why?

Because individuals can use their own CGT exemptions and may benefit from lower tax rates.

In many cases, this difference in who sells the asset (the estate vs. the beneficiary) can result in significant tax savings.

So, What Should You Do?

If you are acting as an executor or managing an estate, and the beneficiaries would prefer cash over inherited assets, don’t rush to sell. First, consider:

  • What type of assets are being passed on?

  • Have they increased in value since the date of death?

  • Are the beneficiaries basic-rate taxpayers (with potentially lower CGT rates)?

  • Could multiple personal CGT exemptions be used?

In many cases, transferring the assets first and selling them later can save a substantial amount of money.

Key Takeaways

  • Income and capital gains can be taxed during the estate administration period—not just inheritance tax.

  • Executors are responsible for calculating and paying these taxes before distributing the estate.

  • If you sell assets too early (before passing them to beneficiaries), the estate may pay more CGT than necessary.

  • Letting the beneficiaries handle the sale after they receive the assets could reduce the overall tax bill.

Need Help Navigating an Estate?

At Merranti Accounting, we help families and executors make tax-smart decisions during estate administration—especially when it comes to avoiding unnecessary CGT bills.

Whether you’re selling property, shares, or other assets, we can guide you through the best strategy to protect your inheritance and reduce your tax liability.

Contact Merranti Accounting today to get advice that’s practical, personal, and focused on your financial future.

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