Inherited Shares — How Capital Gains Tax Works When Someone Dies

Inheriting shares is one of the few situations where the CGT slate gets wiped clean. Whatever the deceased originally paid is irrelevant — your cost basis starts fresh. But that clean start comes with its own complications.

The base cost reset

Under TCGA 1992 s.62, when someone dies, their assets are treated as disposed of and reacquired by the personal representatives at market value on the date of death. No CGT is charged on that deemed disposal — the gain accumulated during the deceased’s lifetime simply disappears.

When you eventually receive the shares (either directly or after probate), your cost basis is that date-of-death market value. If your grandmother bought BP shares for £500 in 1995 and they were worth £15,000 when she died, your base cost is £15,000. The £14,500 of growth during her lifetime is never taxed as CGT.

This is sometimes called the “free uplift on death” — and it’s one of the most significant CGT reliefs in the system. The Low Incomes Tax Reform Group has a clear explanation of how this interacts with other reliefs.

Getting the valuation right

For listed shares (anything on the London Stock Exchange, NYSE, NASDAQ, etc.), the date-of-death valuation uses the quarter-up rule: take the lower of the two prices in the Stock Exchange Daily Official List, then add one-quarter of the difference. In practice, most people use the mid-market closing price on the date of death — HMRC rarely challenges this for mainstream listed shares.

If the person died on a weekend or bank holiday, use the prices from the nearest trading day. The HS284 helpsheet covers the mechanics.

For unlisted shares, you’ll need a professional valuation. HMRC’s Shares and Assets Valuation team (SAV) handles these — and they will scrutinise the figure.

When you sell inherited shares

Your gain is simply: sale proceeds minus the date-of-death valuation. All the normal rules apply — share matching, current CGT rates, the £3,000 annual exemption.

If you inherit shares and add them to an existing holding of the same company in your GIA, they enter your Section 104 pool at the date-of-death valuation. The pool’s average cost adjusts accordingly.

Example: You already hold 200 HSBC shares in your pool at an average cost of £5.50 (total cost £1,100). You inherit 300 HSBC shares valued at £7.20 on the date of death (value £2,160). Your pool is now 500 shares with a total cost of £3,260, average £6.52.

What if the shares have fallen since death?

If you sell inherited shares for less than the date-of-death valuation, that’s a capital loss. You can use it to offset other gains, just like any other loss. See our losses guide.

However, there’s a timing issue. If there’s a long gap between the death and you receiving the shares (probate can take months or years), the market may have moved significantly. Your base cost is fixed at the death date value regardless of what happens during probate.

CGT vs inheritance tax — they’re different

People often confuse CGT with inheritance tax (IHT). They’re separate taxes with separate rules. IHT is charged on the estate above the nil-rate band (currently £325,000, or £500,000 if a family home is passed to direct descendants). CGT is charged when you, the inheritor, sell the assets.

It’s possible to pay IHT on an inheritance and then CGT when you sell. They don’t offset each other. The MoneyHelper guide on tax after a death covers both taxes in one place.

Practical steps

Record the date-of-death market value for every inherited holding. You’ll need it when you eventually sell — which might be years from now. Keep a note alongside your other CGT records.

When you’re ready to calculate the CGT on a sale, TaxBull lets you enter the inherited shares as a purchase at the date-of-death valuation. They enter the Section 104 pool correctly, and any future sale uses the pooled average cost.

Inheritance and estate tax is a specialist area. This is general information only. Seek professional advice, particularly for large or complex estates.