Updated 12 March 2021
Whether you’ve inherited a house from parents or other family members, it means there’s suddenly lots to sort out and many questions that need answering. Should you keep the inherited property or sell it on? What if it’s been left to you and another sibling jointly? Is there still a mortgage on the property? And what about all the legal stuff such as stamp duty, inheritance tax and capital gains tax?
Before you can move in or sell on and benefit from the proceeds, there’s a whole legal process that needs to be completed first. Here’s a quick summary.
The first thing you need to do with an inherited property is establish your legal relationship with it. Did the person who died live a will? Are you named as a beneficiary (which means you have legal rights to your share of the estate once it’s been administered)? Are you named as an executor (which means you’re responsible for sorting out the estate of the person who's died)? If there isn’t a will – known as ‘dying intestate ’– the next of kin can apply for a ‘grant of administration’ to prove they have the legal right to deal with the estate. However, if there’s no will, it means the law decides who inherits what.
Probate is a legal process where the executors of the will sort out the deceased’s affairs. This involves gathering and evaluating any assets – the money and property owned by the deceased at the time of their death – and paying any outstanding bills or tax before distributing what’s left of the estate according to the will. This can be a lengthy process that takes up to a year to complete – so you’ll have a bit of time to decide what you want to do with your inherited property.
As the property you’ve inherited isn’t technically yours until probate is complete, there’s not much you can do with it until then. However, it’s worth checking if the property has a mortgage and, if so, getting in touch with the lender to explain the situation. Most mortgages have a grace period when repayments are suspended while the estate is sorted out. Once the property is legally yours, if there’s a mortgage to pay, you’ll be responsible for it (see more information on this below).
Once probate has been completed and the will has been administered, ownership of the property will be transferred to you and you can register your ownership at the Land Registry. You don't have to do this unless the property is sold or mortgaged, but it will give you the best proof of ownership and make things more straightforward when dealing with the property in the future. Taking advice from your solicitor and your financial adviser can help you make the best use of your inheritance.
If you inherit a property with a mortgage in the UK, you automatically become responsible for meeting the mortgage repayments, even if you don’t live there. In some cases, the deceased may have a life insurance policy, which can be used to cover the cost of the outstanding mortgage. If there’s no policy, or their life insurance policy isn’t enough to pay the mortgage off in full, you generally have two options, once the property’s been officially released to you after probate is settled:
If you have inherited a property with other people, this means that you all own equal shares of the property, unless stated otherwise. You now must all decide how best to divide things up between you. In law, there are two types of joint ownership:
This means that everyone has equal rights to the property, and it’s split equally between the number of beneficiaries. If one person dies, the property will stay in the possession of the others. The last person with rights will then be able to pass the property on to the beneficiary of their choice.
Each person has a share of the property, but the percentage doesn’t have to be equal. The beneficiaries involved can also pass on their percentage someone else if they want to, giving more freedom in where the property ends up.
Sometimes, selling the property is the simplest option – once it’s sold you can then split the proceeds between you.
Once ownership of the property is transferred to you, if there’s a mortgage on the home you’ll need to put it in your name – either with the same lender or by setting up a new mortgage arrangement. Either way, you’ll have to pass the usual affordability and credit checks. If you own the property outright, then you can move in straight away and start enjoying your new home.
Selling an inherited property can be challenging – particularly if it’s a long way from you live or needs updating. Start by clearing the property of its contents – by selling items, donating to charity shops, using a professional house clearance service or putting things into storage.
If the property had elderly owners, you may want to refresh the décor and carpets to make it more appealing to potential buyers and achieve a better price. Get advice from local estate agents on what the property’s worth in its current condition and what renovations could boost its market value. Once your property is up for sale, it’s the same as selling any other home, although you may have to pay inheritance tax or capital gains tax on the proceeds.
Stamp duty land tax is a UK property tax you pay when you purchase a property or a piece of land. However, if a property is left to you in a will, you don’t have to pay stamp duty, instead you pay inheritance tax.
You might have to pay capital gains tax when you sell an inherited property if it’s not your main residence. The amount you pay depends on your personal income and the capital or taxable gains (profit) you receive from the sale. HMRC add the profit you made from the sale to your income to see which Income Tax band you fall into for that year. You then pay capital gains tax on any taxable profit at the specific rate for your income tax band. Both your solicitor and your financial adviser will come in useful here.
As the inheritor, you don’t have to pay inheritance tax directly as it’s paid from funds from the deceased’s estate. However, as a beneficiary, you can choose to use your own savings or raise funds to pay the inheritance tax if don’t want to sell equity in a family home.
The rules around who pays what are a little complicated, so it’s best to consult a financial adviser. For example:
The standard rate of inheritance tax in the UK is fixed at 40% and is payable based on the total value of the estate – which includes property, investments and any other assets. It has to be paid to HMRC by the end of the sixth month after the person died. For example, if they passed away in May, you must pay it by 30 November of the same year.
A trust is a way of holding and managing money or property for people who may not be ready or able to manage it for themselves. If you're left property in a trust, you are called the beneficiary. The trustee is the legal owner of the property and they are legally bound to deal with the property as set out by the deceased in their will.
When the person who owned the property dies, all their foreign assets including overseas property, bank accounts and investments, will be added to the value of their estate, which may be liable to UK inheritance tax. There may also be additional taxes to pay in the country where the property is located. The UK has signed double taxation treaties with many countries, which should allow you to claim back any double payments.
Generally in divorce settlements in England and Wales, all assets are pooled and treated as joint assets. Money or property that you’ve inherited are not automatically excluded from the assets to be divided. However, every case is different and depends on individual circumstances including the size of the inheritance, when you received it, how it was dealt with during the marriage, and the financial needs of both parties.
You won’t be able to sell the property until probate is completed, unless your name is already on the deeds – for example, if you’re the deceased person’s spouse. This process may take anywhere from eight weeks to a year. It’s not uncommon to put the property on the market whilst waiting for the probate to be finalised, to allow for a quick sale once completed.
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