Selling a home after someone has passed away can be challenging both emotionally and administratively.
Alongside the legal process of probate, executors must also navigate a series of tax obligations that affect how and when the estate can distribute assets.
As property values continue to rise, more estates are being drawn into the scope of Inheritance Tax (IHT) and the tax treatment of a probate property sale has become one of the most important considerations for families.
This quick guide explains the key financial and reporting duties involved so that executors understand their responsibilities and avoid unexpected HMRC issues during the sale.
Why probate matters for tax and property sales
Probate is the legal authority that allows an executor (or administrator if there is no Will) to manage a person’s estate. Until the Grant of Probate is issued, the property normally cannot be sold or transferred.
For tax purposes, the value of the property as at the date of death is essential. This figure helps determine whether the 40 per cent rate of IHT is due or not.
IHT will only typically be due if the value of a person’s entire estate exceeds the nil rate band and residence nil-rate band.
Combined these thresholds give an individual an effective tax-free allowance on £500,000, which increases to £1 million were one spouses allowance is passed to their partner after they die.
Executors must ensure that the valuation is accurate, as HMRC can challenge figures that appear too low.
If the property was co-owned, the position can differ depending on whether ownership was as joint tenants or tenants in common, which affects how the deceased’s share is taxed and passed on.
Inheritance Tax: What executors need to know
IHT is one of the biggest financial considerations when selling a probate property. As IHT thresholds remain frozen until 2030, more estates are now required to report and pay tax.
What you need to consider for IHT on probate property:
- IHT must normally be paid within six months of the date of death, even if the property has not yet been sold
- IHT on property can often be paid in instalments, although interest is charged by HMRC
- Once the sale completes, any outstanding IHT must be settled in full
- Executors must submit the correct IHT return, even if no tax is due
Because IHT deadlines continue even while probate is pending, some families choose to use short-term financing, such as a probate bridging loan, to avoid interest charges or cashflow difficulties. It is important to seek specialist advice before taking this step.
Capital Gains Tax: When it applies
If the property sells for more than the date-of-death value, the estate may make a capital gain.
Capital Gains Tax (CGT) may be payable by the estate, although executors benefit from a limited CGT allowance during the period of administration. Accurate valuations and sale records are vital for reporting gains correctly.
Estate tax returns and reporting responsibilities
Executors are responsible for ensuring the estate’s tax affairs are up to date. This may include:
- Completing IHT205 or IHT400 forms depending on the complexity of the estate
- Filing an estate tax return if the estate receives income or makes gains during administration
- Reporting and paying any CGT due on the property sale
- Ensuring IHT is fully paid before distributing funds
Mistakes or delays in reporting can lead to penalties from HMRC, so professional guidance is advisable.
Common challenges when selling a probate property
Selling a probate property involves more obligations than an ordinary sale. Executors must ensure they meet their duties to both the beneficiaries and HMRC, which can create pressure at an already difficult time.
Typical challenges include:
- Proving market value for IHT purposes
- Managing IHT payments before the property sale completes
- Meeting reporting deadlines while waiting for probate
- Balancing beneficiaries’ expectations with legal duties
- Ensuring the property is insured and secure during the administration period
Because executors must sell at market value, selling below that figure can lead to disputes or accusations of mismanagement.
How long does the process take?
Probate applications now take around 16 weeks or longer, even for straightforward estates.
Executors should apply as early as possible to avoid delaying the sale. While there is no fixed period for completing administration, executors are encouraged to distribute the estate within the executor’s year, provided all tax liabilities are settled.
Supporting you with the tax and legal process
Selling a probate property involves managing tax, legal paperwork and the expectations of beneficiaries at a highly sensitive time.
Once probate is granted, many buyers find these properties attractive because they are often chain free, but the journey to completion still requires experienced oversight.
We can guide you through every stage of the process, from the tax reporting requirements to the legal conveyancing.
Whether you need help with IHT, estate tax returns or managing the sale, our team is here to support you.
