Property is often the most valuable asset in a deceased estate and the subject of the most complex estate administration decisions. A rental portfolio may need to be maintained and managed as a going concern during the administration period — which can last for months or years in complex estates. The PRs must balance the interests of the residuary beneficiaries (who want prompt distribution) against the estate's tax liabilities (which may require the sale of property to fund IHT) and the practical management of the letting obligations. This guide sets out the key legal and tax principles governing probate property — from the grant of probate through to the distribution of the property to the beneficiaries.
Grant of Probate and the PRs' Powers Over Property
The legal title to a deceased person's estate vests automatically in the PRs on death (Administration of Estates Act 1925 s.1): (a) Executors: where the deceased left a valid will appointing executors, the executors' title dates from the date of death — they have authority to act immediately, even before the Grant of Probate is issued; the Grant of Probate is a court order from the Probate Registry confirming the validity of the will and the executors' authority; without a Grant, third parties (including HM Land Registry and banks) will not recognise the executors' authority; the Grant must be obtained before the estate can be fully administered; (b) Administrators: where the deceased died intestate (without a valid will), or where the will does not appoint executors (or all appointed executors have predeceased), letters of administration must be obtained; the administrators have authority from the date the Grant of Letters of Administration is issued — not from the date of death; (c) PRs' powers over property: the PRs have power under AEA 1925 to: (i) sell property to meet estate debts (including IHT), costs, and legacies; (ii) let property during the administration period; (iii) grant options over property; (iv) appropriate property to a beneficiary in satisfaction of their share; (d) Trust corporation as PR: where the PRs are a trust corporation (professional executor service; bank's probate department), they have the same powers as individual PRs; their authority must be verified by the appropriate corporate authority documents; (e) Overreaching: a sale by at least two PRs (or a trust corporation) overreaches the beneficial interests under the estate — a purchaser for money or money's worth is not affected by the beneficial interests; this means a purchaser does not need to investigate the distribution of the estate.
- Executors: authority from date of death; Grant of Probate confirms authority to third parties; required by HMLR and banks before registration of dealings
- Administrators: authority from date of Grant of Letters of Administration (not from date of death); intestacy rules in AEA 1925 determine entitlement to apply
- PRs' power to sell: AEA 1925 power to sell property to meet IHT, debts, costs, and legacies — even if beneficiaries object
- PRs' power to let: PRs can let property during the administration period; letting income is estate income subject to income tax at the rate applicable to estates
- Overreaching: sale by two or more PRs (or a trust corporation) overreaches beneficial interests; purchaser not affected by the distribution of the estate
Inheritance Tax on Property — RNRB and Exemptions
Inheritance Tax (IHT) applies to the deceased's estate above the nil rate band (NRB) at 40%. The key IHT provisions affecting property: (a) Nil Rate Band (NRB): the NRB is £325,000 per person (frozen at this level until at least April 2030); unused NRB can be transferred to a surviving spouse or civil partner, giving an effective NRB of up to £650,000 for a couple; (b) Residence Nil Rate Band (RNRB): an additional NRB of up to £175,000 per person is available where a residential property that was the deceased's home is left to direct descendants (children; grandchildren; step-children); the RNRB is tapered by £1 for every £2 by which the net estate exceeds £2 million (so a £2.35m+ estate gets no RNRB); unused RNRB can be transferred to a surviving spouse or civil partner; (c) The RNRB and rental property: the RNRB applies specifically to the deceased's main residence — not to a rental property; a buy-to-let property does not qualify for the RNRB; a property that the deceased lived in before moving to a care home may qualify for the RNRB under the 'downsizing' provisions; (d) Business Property Relief (BPR): property used in a genuine business (such as a trading business) can qualify for BPR at 100% (shares in unlisted companies; interests in a business) or 50% (land and buildings used in the business; listed shares); a pure property letting business does NOT qualify for BPR — HMRC regards property letting as an investment activity, not a business; a holiday letting business (genuine FHL trading activity) may qualify, but the abolition of the FHL regime from April 2025 has significantly restricted this argument; (e) Agricultural Property Relief (APR): agricultural land and farmhouses used for agricultural purposes can qualify for APR at 100% or 50%; the property must be used for agriculture and must have been owned for 2 years (owner-occupied) or 7 years (let to others); the Budget 2024 announced a £1 million cap on the combined APR/BPR reliefs from April 2026 at 50% above that cap; (f) IHT payment: IHT on land and property can be paid in instalments over 10 years (paying the annual instalment from the due date); IHT on other assets must be paid before the Grant of Probate is issued; the instalment option is conditional on the property not being sold during the instalment period.
- NRB: £325,000 per person (frozen until April 2030); transferable to surviving spouse/CP (up to £650,000 combined)
- RNRB: up to £175,000 per person where main residence passes to direct descendants; tapered above £2m net estate; not available for buy-to-let properties
- BPR: does not apply to property letting businesses (investment activity); may apply to genuine trading businesses — FHL BPR argument restricted by FHL abolition April 2025
- APR: agricultural land and farmhouses; 100% or 50% relief; Budget 2024 — £1m combined APR/BPR cap from April 2026 at 50% rate above the cap
- IHT instalment option: IHT on property can be paid in 10 annual instalments; ceases if property is sold during the instalment period
CGT on Sales and Lettings During the Administration Period
The CGT treatment of property in the administration period differs significantly from the treatment during the deceased's lifetime: (a) The death uplift (base cost rebasing): on death, the CGT base cost of all assets (including property) is 'rebased' to the market value at the date of death; this means that the PRs take the property at its probate value as their base cost; any CGT arising during the deceased's lifetime is wiped out; (b) CGT on sales during the administration: if the PRs sell a property during the administration period, they are liable to CGT on any gain above the probate value; the PRs have a CGT annual exempt amount of £3,000 per year in the tax year of death and the following 3 tax years (2024-25 rates); beyond 3 years, the PRs have no annual exempt amount; the CGT rate for PRs on residential property is 24% (from October 2024); on non-residential property it is 24% (same rate from October 2024); (c) PRs' income tax during administration: letting income received by PRs during the administration period is taxed at the rate applicable to estates (RTE) — currently 20% for non-savings income (rental income); this is lower than the higher or additional rate that beneficiaries might pay personally; however, the PRs must account for the tax via a self-assessment return; (d) Lettings during administration: the PRs can let the property during the administration period; the letting income is estate income (not the beneficiary's personal income) until the property is appropriated or transferred to the beneficiary; PRs who let property must comply with all landlord obligations — EPC; gas safety; electrical safety; right to rent — in the same way as a regular landlord; (e) Deed of variation: a beneficiary who wishes to redirect an inherited property (e.g. to avoid IHT on their own estate) can execute a deed of variation within 2 years of death; a valid deed of variation is treated as if the deceased had made the gift directly — IHT and CGT are recalculated on the basis of the variation.
- Death uplift: CGT base cost of all estate assets is rebased to probate value on death; no CGT on gains accrued during the deceased's lifetime
- PRs' CGT: gains above probate value are taxable; PRs have a £3,000 annual exempt amount for 3 years after death only; CGT rate 24% on residential property (from October 2024)
- Lettings during administration: letting income is estate income taxed at RTE (20% for rental income) — PRs must file self-assessment returns; comply with all landlord obligations
- 3-year CGT exempt amount: after 3 years, PRs have no annual exempt amount — time-limited incentive to sell within 3 tax years of death
- Deed of variation: redirect inheritance within 2 years of death; treated as if the deceased made the gift directly; IHT and CGT recalculated on the varied basis
Appropriating Property to Beneficiaries and Intestacy
The administration of a property-heavy estate ends when the properties are either sold (proceeds distributed to beneficiaries) or appropriated to beneficiaries: (a) Appropriation: AEA 1925 s.41 gives PRs the power to appropriate any part of the estate to any beneficiary in or towards satisfaction of their share; the beneficiary must consent to the appropriation; the property is transferred at its value at the date of appropriation (not at the date of death); the beneficiary takes the property with a CGT base cost equal to the appropriation value (which may be higher than the probate value if property values have risen during administration); (b) CGT on appropriation: appropriation is not treated as a disposal for CGT purposes by the PRs — there is no CGT charge on the PRs when they appropriate property to a beneficiary; the beneficiary's CGT base cost is the market value at the date of appropriation; (c) SDLT on appropriation: where property is appropriated to a beneficiary in satisfaction of their share, the appropriation is generally exempt from SDLT as it is not a 'chargeable consideration' within FA 2003 s.49; (d) Intestacy rules — who inherits?: where the deceased died intestate, the AEA 1925 intestacy rules determine the order of entitlement: (i) spouse or civil partner takes: all personal chattels; the first £322,000 (from October 2023); one half of the residue; (ii) issue (children/grandchildren) take the other half of the residue; (iii) if no spouse and no issue, the estate passes to parents; then siblings; then other relatives in order; (iv) 'Children' includes adopted and illegitimate children but not stepchildren (unless adopted); (e) Intestacy and co-habiting partners: a co-habiting partner who is not married to or in a civil partnership with the deceased has NO statutory right to inherit under intestacy; the co-habitant must make a claim under the Inheritance (Provision for Family and Dependants) Act 1975 (IPFDA 1975) or under a constructive/resulting trust.
- Appropriation (AEA 1925 s.41): PRs can appropriate property to beneficiaries; beneficiary must consent; CGT base cost is the appropriation value (not probate value)
- No CGT on appropriation by PRs: appropriation is not a disposal for CGT; beneficiary's CGT base cost = market value at appropriation date
- SDLT exemption: appropriation in satisfaction of a beneficiary's share is not a chargeable land transaction for SDLT purposes
- Intestacy: spouse/CP takes all chattels + first £322,000 + half residue; issue take remaining half; co-habitant has no automatic entitlement
- IPFDA 1975 claim: co-habitant or financially dependent person must claim within 6 months of Grant of Probate/Letters of Administration
Frequently asked questions
Can personal representatives let a property during the administration of an estate?+
Yes. Personal representatives (PRs) — executors or administrators — have the power under the Administration of Estates Act 1925 to let property during the administration period. The letting income is estate income, taxed at the rate applicable to estates (currently 20% for rental income). The PRs must comply with all landlord obligations — EPC, gas safety, electrical safety, right to rent checks — in the same way as a regular landlord.
Is there a death CGT uplift on inherited property?+
Yes. When someone dies, the CGT base cost of all their assets (including property) is rebased to the market value at the date of death. This 'death uplift' means that any CGT arising on gains accrued during the deceased's lifetime is wiped out. If the PRs subsequently sell the property during administration, they pay CGT only on any gain above the probate value. The PRs have a £3,000 annual exempt amount for CGT for 3 tax years after the death.
Does the Residence Nil Rate Band apply to rental properties?+
No. The Residence Nil Rate Band (RNRB) applies to a residential property that was the deceased's main residence (or that they had previously lived in) and that passes to direct descendants (children, grandchildren, step-children). A buy-to-let property that the deceased never lived in does not qualify for the RNRB. A property that the deceased lived in before moving to a care home may qualify under the RNRB 'downsizing' provisions.
Who inherits a property if someone dies without a will?+
Under the intestacy rules (Administration of Estates Act 1925 as amended), the spouse or civil partner takes: all personal chattels; the first £322,000; and one half of the residue. Children and grandchildren take the remaining half of the residue. If there is no spouse and no children, the estate passes to parents, then siblings, then more distant relatives. Crucially, a co-habiting partner who is not married to or in a civil partnership with the deceased has no automatic entitlement to inherit — they must bring a claim under the Inheritance (Provision for Family and Dependants) Act 1975.
Do I need to pay SDLT when property is transferred from an estate to a beneficiary?+
No. An appropriation of property from an estate to a beneficiary in satisfaction of their entitlement under the will or intestacy is generally exempt from SDLT — it is not a 'chargeable consideration' for the purposes of Finance Act 2003. SDLT does arise if the beneficiary pays consideration (e.g. pays the estate for a property above their entitlement, or takes on a mortgage secured on the property as part of the transfer arrangement).