When you inherit shares, you typically do not need to pay Capital Gains Tax (CGT) immediately. However, the situation changes when you decide to sell or dispose of the inherited shares. Here’s a detailed breakdown of how CGT works when inheriting shares:
1. No CGT on Inheritance
When you inherit shares, there is no Capital Gains Tax at the time of inheritance. The value of the shares at the date of the deceased person’s death is used as the market value for CGT purposes. Essentially, you do not pay tax on any increase in value that occurred before you inherited the shares.
2. Base Cost for CGT Calculation
For CGT purposes, the value of the shares on the date of death becomes your base cost or acquisition value. This means that when you sell the shares, you will be liable for CGT on the capital gain — the difference between the sale price and the value of the shares on the date you inherited them.
Example:
- Value at inheritance: £10,000
- Sale price: £15,000
- Capital gain: £15,000 – £10,000 = £5,000
In this example, if you sell the inherited shares for £15,000, you would pay CGT on the £5,000 gain, as this is the increase in value from the time you inherited the shares.
3. Tax-Free Allowance (Annual Exempt Amount)
Just like any other asset, if you sell inherited shares and make a capital gain, you are entitled to the Annual Exempt Amount (AEA). For the 2026/27 tax year, this is £3,000 for individuals. This means if your total capital gains (including the sale of inherited shares) fall below this threshold, you will not need to pay CGT.
4. What If the Shares Have Decreased in Value?
If the shares have decreased in value between the date of inheritance and the time of sale, you may be able to claim a capital loss. This loss can be used to offset other capital gains you have in the same tax year or carried forward to offset gains in future years. However, it’s important to note that the loss is calculated based on the value of the shares at the time of inheritance, not the original purchase price of the deceased.
5. When Is CGT Due?
CGT on the sale of inherited shares is typically paid when you file your Self-Assessment tax return for the relevant tax year. The sale of inherited shares will be included in the calculation of your total capital gains for that year.
6. Exemptions and Reliefs
- Spouse or Civil Partner Transfers: If the shares are inherited by a spouse or civil partner, there may be specific tax exemptions, and no CGT is due at the time of transfer.
- Principal Private Residence Relief: If the inherited shares are linked to the sale of a property that qualifies for relief, CGT may be reduced or eliminated.
- Gift Hold-Over Relief: If the shares are transferred as a gift before inheritance, and certain conditions are met, gift relief may apply, deferring CGT.
7. Inheritance Tax Considerations
While there is no CGT on inheritance, Inheritance Tax (IHT) may apply to the estate of the deceased if the value exceeds the IHT threshold. The IHT is generally paid by the estate, not the individual inheriting the assets, but it can affect the total value of the inheritance.
Conclusion
Inheriting shares in the UK does not trigger immediate CGT. The tax is only due when you sell the shares, and the gain will be calculated based on the market value at the time of inheritance. Understanding the base cost, the available allowances, and any potential losses is key to managing your tax liability. As always, it’s advisable to seek professional tax advice when dealing with inherited assets to ensure you are fully informed of your responsibilities and opportunities for relief. Not sure how much CGT you’ll owe on inherited shares? Call us on +44 (0)1204 859315 or use our free CGT calculator to get an instant estimate.
