Inherited a property? Find out what your options are…
A death in the family is always a shock. It can thrust you into a whirlwind of 1000 questions you’re not sure you have the answers for. One of these is what to do with someone’s house when you inherit it…
What do I need to do when I inherit a property?
The first things to do when you inherit a house are:
1. Secure the property
An empty house is more likely to attract criminal activity or succumb to maintenance issues that, left untended, can cause extensive damage. Lock all doors and windows, turn on the burglar alarm if there is one and turn off water, gas and electricity supplies at the mains. Store anything of monetary or sentimental value elsewhere, and if the property is likely to sit empty for some time, consider installing a simple CCTV system.
2. Inform the council and utilities companies
Avoid running up expensive bills by cancelling any utility accounts and letting the council know that the property is not currently inhabited. If the property is vacant for any length of time, the council may reduce the council rate.
3. Take out insurance
When a homeowner dies, any insurance policies they hold for the property, such as buildings and content insurance, will probably be terminated within 30 days. Unoccupied home insurance will cover the property until you have completed the probate process and decided what to do with it.
4. Get a property valuation
Get an Estate Agent around for a free home valuation – you can ask for both sales and rental valuations, so you have all the information at hand to make the best decision.
You will need to complete the probate process before selling the property or renting it out.
What Is Probate?
Probate is the legal process of administering a deceased person’s or persons’ estate (all their assets and money). Unless you jointly owned the property with your parents, you will need to apply for probate to give you the legal right to take possession of it. If there is an executor of the will, they will usually apply for probate for you.
If there is no will, the process can be a little more complicated and lengthy. Instead of the Grant of Probate, you will need to apply for “Letters of Administration”. When someone dies “intestate” — without leaving a will — their estate will be divided according to the “rules of intestacy” — the children of deceased parents will be first in line to inherit.
Once probate has been granted, you can do with the property as you wish.
What if you’re inheriting the house with other people?
If you are named a joint beneficiary of a house along with others, you will all need to agree on what to do with the property. A house is much more difficult to share than cash, and if there is disagreement about what to do with the property, the situation can soon become complex and unpleasant.
How to divide an estate between multiple people
Assuming each person inherits an equal share of the property, you have the following options to consider:
· Keep the property and live in it together — often not practical nor desirable unless all parties agree to renovate and create multiple separate residences.
· One person lives in the property — they either buy the other(s) out, or the non-resident(s) retains a share of the property they will recoup when sold.
· One person buys the other(s) out — and keeps the property as a second home or rents it out as an extra source of income.
· The house is sold — and the proceeds split equally between all the siblings.
· The house is rented out — and the proceeds split equally between all the siblings.
If there is an outstanding mortgage balance on the inherited property, many people choose to sell because they cannot afford to take on a second mortgage even if it is shared with others.
Do I have to pay inheritance tax?
If the value of the deceased’s estate (property, money and possessions) is less than £325,000, there’s usually no inheritance tax to pay. However, when a parent passes on their home to a child or children, the tax-free threshold can increase to £500,000. This includes adopted, foster or stepchildren.
If the estate exceeds the relevant threshold, you will be liable to pay the standard inheritance tax rate of 40% on the amount above this figure. For example, if the value of your inheritance is £650,000, you could be entitled to £500,000 tax-free, and you will only pay inheritance tax on the remaining £150,000, which at the 40% rate would be £60,000.
How do I avoid Capital Gains Tax?
Capital gains tax (CGT) is paid when a property is sold and is payable on the amount of value increase since the property was inherited. Therefore, if you don’t sell you won’t have to pay CGT immediately, but when you do sell it, you will have to pay more if the property has increased in value during that time.
The best way to minimise the CGT is to sell the property as soon as the probate process is completed. You cannot legally sell a property during probate, but you can put it on the market, advertise it, conduct viewings, and agree on a sale price with a buyer.
Selling the property immediately after you have obtained the legal right to do so means that the property’s value is unlikely to have increased from when you inherited it — the “probate value” — to when you sell it. As CGT is only payable on the uplift in value, there should be no CGT, or very little, to pay.
So, is it better to sell or rent an inherited property?
This can be a difficult decision. Do you sell up and bank the cash? Or hang on to the property to benefit from any future increase in value and an ongoing second income?
The latter may seem appealing, but managing a rental property can be stressful and time-consuming. You’ll also need to ensure that you have the finances to maintain the property and pay the mortgage (if there is one) during periods when the house is empty.
If you inherited the house with others, sharing the responsibility of a rental property can be challenging, whereas selling allows you to split the proceeds and make a clean break. This may be particularly beneficial when inheriting your parent’s home, which is likely to have some emotional attachment for you — moving on may be difficult in the short term but less emotionally draining in the long term.
Each situation is unique
Every property inheritance is different so it’s hard for us to tell you what to do unless we can have a chat about your situation. Our team can help guide you through this time, and once you have made the decision, take on the work for you, keeping you informed every step of the way to minimise stress at a difficult time.
Get in touch with our team today to chat about your options so we can give you our expert advice.