Inheriting a property can be a daunting experience because it typically happens through a will so it occurs at a stressful and emotional time in most people’s lives. But knowing the process about home inheritance can help to significantly reduce the stress, so keep reading for some important information about what you should do when you inherit a property.
Inheriting a property can be a bonus, but it can also come with costs
If you have been named as the person in a will to inherit a property, that means someone has chosen you to take over ownership of their house or flat. This might initially seem like potentially good news because homes can be wonderful assets, but it can have some drawbacks.
Inheritance tax is the amount of tax that is charged on the estate of a person who has died, and the estate includes their property such as a house or flat, as well as their money and any other possessions. But as the UK government’s website explains, here’s no inheritance tax to pay if an estate is below a certain threshold.
Capital gains tax is another cost you might have to pay if you decide to sell your inherited home. In the event that the house or flat has gained in its value since the date that you inherited it, you will have to pay the government capital gains tax. The precise percentage of the tax varies based on your taxpayer rate, but there’s an allowance for everyone of £12,000.
Steps you need to take when you inherit a property
One of the first steps that you should take when inheriting a property is therefore to assess whether you will have any tax liability for taking ownership of the house or flat.
But before you can decide what you want to do with the home, you need to wait for the completion of probate. This is the process through which legal professionals use the estate to pay off any debts from the person who has died, with the remaining assets such as property then being passed on those named in the will to inherit them.
Once probate is complete you should consider purchasing unoccupied home insurance. This will cover you for any damage that the inherited home might suffer whilst you think about what you’d like to eventually do with the property. And when trying to decide this, you generally have three main choices: sell the property, rent it out, or keep it for yourself.
Renting the property
Renting out the house or flat would give you some additional income from the monthly rental payments that your tenants will make. But you are likely to face income tax for this profit, so that’s another deduction you’ll have to consider when deciding whether it’s worth renting.
If the house or flat was already being rented out at the time you inherited the property, this means you now possess a “buy to let” home that will likely already have tenants living in it based off an agreement that they will have signed with the deceased owner. This creates another question about what you’d like to do, because you could continue the rental agreement, or you could look to see whether you can evict the tenants and try selling the house. If you are able to vacate the buy to let home you could also consider moving into it.
Selling the property
Alternatively, you could try to sell the house — whether that’s through an estate agent, an auction, or with a fast home buying company like LDN Properties. Whichever option you choose, you’ll first have to empty the home of the deceased person’s belongings and get it looking in good condition before potential buyers come to visit it. Just remember that some profit from selling might be liable for capital gains tax or inheritance tax, and be sure to include those charges as you calculate your possible profit from selling.
Moving into the property
The third option is to move into the house. If you do this and there is still a mortgage on the home to be paid off then you will have to transfer that loan under your name, meaning you will now be legally responsible for making the monthly mortgage payments. If you are already struggling to pay your bills then this might not be a wise move.