Inheriting property is not uncommon, with around 36% of the population inheriting property at some time in their lives. However, around 70% of those who inherit a property would not want to live there.
While inheritance is a gift, it can quickly become a cause of concern to children or other beneficiaries who have no plans to live at the inherited property. They will have to decide whether to rent the property out or put it up for sale, and consider the financial and tax implications as well as any associated paperwork.
Dealing with a shared inheritance
It further complicates matters when the property is inherited by multiple beneficiaries. For example when the inheritance is shared between siblings, you will all have to be aligned as to the future of the property. Will one of you be allowed to live at the property? Will you sell it? Or get an income by renting the property out? Progress can become difficult if one sibling is more attached to the property, or has personal ambitions for it. For example, what if you don’t want to live at the property but your sibling does? What is the fairest way to deal with this? Could your sibling buy your share of the property? Could you rent your share of the property to your sibling at the proportion of market rate? These plans will have to be agreed by all the involved parties – so the more beneficiaries that the property has, the more complex the matter becomes.
Probate is the procedure to first confirm the will and then transfer the estate of the deceased to the beneficiaries. Complications can arise which delay the probate process, for example when there is no will, or the will is contested. Usually it takes 6-8 weeks for a grant of probate to arrive, and then another 3-6 months to finalise all the details of the estate and the inheritance, or it may take longer if the estate is large and especially complex. For instance, where the inheritors don’t agree on the issues and there are various different financial accounts and properties to deal with.
It is attractive to avoid using lawyers when dealing with family, however it is advisable to keep everything professional. Get everything officially written down, as long and bitter problems in families can arise from inheritance disputes. It is important that everyone involved is content with the final agreement, and has a copy in writing. A verbal agreement may sound good but is harder to scrutinise.
When you take ownership of the property it may still have a mortgage. You will need to keep up repayments on the mortgage unless you can repay it or decide to sell the property.
A solicitor can register the property in your name as part of the probate procedure, if you decide to keep it. Otherwise, the property can be sold directly from the estate of the deceased to the new owner, without any need to first register it to the beneficiaries.
Capitals Gains Tax
Inheriting a property can potentially leave you in a worse situation. If the property increases in value while in your possession then you might be liable for Capital Gains Tax. The relief allowable for CGT as of 2017 stands at £11,300, and tax owed above the threshold depends on whether you pay the standard rate or higher rate of tax.
Any CGT due must be paid within 30 days (from April 2020).
Since 2017 any estate appraised over £325,000 will attract inheritance tax at a rate of 30%. If the property is sold the tax may be paid from the proceeds, as it will usually be taken directly from the estate. Any inheritance tax due will need to be paid to HMRC within 6 months of the person’s death, otherwise interest will be added and accumulated.
To sell or to rent?
According to recent studies over half of people said they would rather sell the property they had inherited and use the proceeds to buy a property of their choosing. Their objective is to use the inheritance to get onto, or climb higher up, the property ladder.
In reality a bereavement can make it more painful and sentimental to sell the property. Even if the property doesn’t reach market value some people will sell as quickly as possible in order to move on. In other cases people can’t immediately sell the house as they need to check through the contents which is an ordeal and takes time.
When there are multiple beneficiaries, or Joint inheritance, it will be fine if their goals are aligned, for example if they both consent to selling the property. However, just agreeing the price at which to sell the property can be a matter of contention. After deciding on a price will you wait a long time for a buyer, or later decide to reduce the price? How much would you drop the price, and after what delay? Discussing these issues in advance can help all the parties feel confident about the plan.
Another option is to rent the property out instead of putting it on the market. Any income that arises could be split between the beneficiaries according to their shares. Renting is a great stopgap if the property market is sluggish and none of the inheritors are in a rush to sell. However, the property may require maintenance, and if you don’t live locally you will have the extra expense of an agent to manage the property on your behalf. Remember that any income from the rental will also be subject to tax.
Getting your property ready for sale
Almost 30% of people who inherit say they intend to refurbish the property before the sale. This is a good idea. Usually the same individual will have lived at the inherited property for a long time. There may be accessibility aids installed at the home, if it was adapted for an elderly person, such as alarms, stair lifts or hand rails. These might make the property unappealing to future buyers, even though they are useful for the aged.
Clearing and renovating a home where your loved one lived can be agonising, but it is necessary to carefully sort and clear out the effects, to quickly get the properly into good order for sale. Throwing out or donating items might be too painful at this stage. If you are unsure which items are sentimental for members of the family, you could discuss it with them, or put the items into storage for a later decision.
If you are going for a quick sale why not focus the renovations on the cheapest and quickest options with the highest impact? To make a big impact, remove any old carpets and consider replacing with modern flooring, repaint with plain colours, and clear out any possessions. Whilst the property is on view reduce the amount of furniture and maximise the light getting into the property. Straighten up the front and back gardens, brushing and spraying the patios, trimming the trees or bushes, and cleaning all the windows.
To stay confident of your tax liability you should get the property valued. If the property is old has not had an Energy Performance Certificate (EPC) in the last 10 years you may need to update it, as the efficiency standards have changed in recent years, and the property may no longer satisfy efficiency standards. To sell a property it must have a recent EPC undertaken less than 10 years ago.
Undertaking structural alterations to the property can drag on and become expensive, and lead to more disagreements between the beneficiaries as to the extent of the alterations. Research the type of buyer who would be interested in the property, and this will help you decide on how they would want the property to look, which will help to sell it faster.
How much time will the process take?
Going through the Probate process can take a long time when you have to market a property, so the quicker you can empty and renovate the property and list it for sale, the less time it should take. There will be outgoings to pay on the property such as council tax and energy bills, which might make you anxious to sell as soon as possible. If the property stands empty for longer than a month you will need to contract vacant property insurance.
If you can afford to continue to pay all the outgoings on the property, like taxes, insurance and mortgage payments, then there is no hurry to sell or rent the property if you don’t know how to proceed, or if there are disagreements between inheritors. Determine whether you would regret selling the property in later years, if it would be better to keep as a rental property, or even if one of the inheritors might want to live there if it is better than their current property, and make your choice with a clear head.
Find more information about handling the estate of a person who has recently passed on.
Before spending any of your own money on renovating the property, get a Chartered Surveyor. They can produce an accurate valuation for HMRC for probate. If the council are informed the property is unoccupied they may reduce your council tax.