Selling inherited property

Selling inherited property after a bereavement can be very emotional. It’s also a process that few people are familiar with, which can add to the stress. If you’re considering selling an inherited property, this useful guide will explain how it works and help you consider your options.

selling an inherited property

What happens when you inherit a house?

If you’ve inherited a property, you will have some time before you are required to make any decisions.

Before you can do anything with the inherited home, it must go through probate. Probate is the process of the deceased’s estate being settled. During the probate process, any debts will be paid before assets are distributed as per the deceased person’s wishes.

What costs are there to consider when you inherit a property?

During the probate process, few of the costs associated with property ownership will apply. Some will be paused until ownership has been transferred to someone new and some will become obsolete. Those that are still payable through the probate process should be handled by the deceased person’s estate. For example, the property will still need to be insured between the time of death and when ownership of the property is transferred to its new owner. It will be the responsibility of the will’s executor to arrange this.

Once probate has been granted, ownership of the property will officially transfer to you. At this point, the property and all associated costs will become your responsibility. These costs may include:

  • Home insurance
  • Council tax
  • Utility bills
  • Property maintenance
  • Ground rent and management fees (if the property is leasehold)

Do you have to pay mortgage on inherited property?

Most mortgage companies will require homeowners to have a life insurance policy. This policy will pay off their mortgage in the event of their death. If the deceased person did not have life insurance – or, for some reason, the insurance company is unwilling to pay out – there may be a mortgage to repay on the inherited property. This should be settled by the estate before the property can be inherited. If there is enough money in the estate, the mortgage can be repaid. If there’s not enough money in the estate, the property will need to be sold to repay the mortgage.

Do you pay tax on inherited property UK?

Inheritance tax and capital gains tax may be payable in certain circumstances. Tax liability will depend on the value of the estate and whether you choose to sell the property after inheriting it.

When do you pay inheritance tax on property?

Property inheritance tax may be payable if the whole ‘estate’ (the deceased person’s financial assets minus any debts) is worth more than the inheritance tax threshold.

The whole of the deceased person’s estate (their money, possessions and property) will be subjected to inheritance tax if it is worth more than £325,000. Any inheritance tax due will be paid by the executor of the will before the property is transferred to you. The current rate of inheritance tax above the £325,000 threshold is 40%.

Who pays inheritance tax on jointly owned property?

Any inheritance tax will be paid by the will’s executor before the property is transferred to its new owners. Therefore, it doesn’t matter whether the property has been inherited by one person or multiple beneficiaries.

How to avoid inheritance tax on property

There are a few ways you can reduce the amount of inheritance tax you pay.

Transfer unused inheritance tax threshold

If you’re a married couple or in a civil partnership and your individual estate is worth less than the inheritance tax threshold, any unused threshold can be transferred to your partner when you die.

Property allowance

If you own a property, the inheritance tax threshold may be increased to £500,000. This will be on the condition that you leave the property to your children or grandchildren and your estate is worth less than £2 million.

If you want to gift a house before you die, you can do so, but the value or the house will still count towards your inheritance tax threshold unless you live more than 7 years after you gift the property. You won’t be able to live in the property for at least 7 years before you die if you don’t want the value of the property included in inheritance tax liability. If you do want to remain living in the property after you gift it, you will need to live there for at least 7 years and pay rent on the property for the entirety of those 7 years.

Charitable donations

Inheritance tax can be reduced to 36% on some assets if you leave 10% of the estate’s net value to charity in your will. You can also avoid any inheritance tax at all if you leave everything over the £325,000 threshold to your spouse, civil partner or a charity.

When do you pay capital gains tax on inherited property?

You may be required to pay capital gains when you sell an inherited property. If the property is not your main residence and it increases in value between the time of inheriting it and the time of selling it, you may have to pay capital gains tax on the ‘profit’ you make.

You may also be required to pay capital gains tax on inherited property if it is gifted to you up to 7 years before the former owner passes away. Capital gains tax will be applied to the sold price minus the value of the property at the time of it being gifted to you, rather than the value at the time of the previous owner’s death. Everyone has a personal capital gains tax-free allowance of £6,000. This means you would only be required to pay tax on any capital gains above that amount.

How to avoid capital gains tax on inherited property

There are two ways to avoid capital gains tax. Capital gains tax is payable on any increase in value between probate and when an inherited property is sold. If you know you’re not going to want to keep the property long-term, you can sell it as soon as probate is granted. This will avoid any taxable increase in value.

The other way to avoid capital gains tax on an inherited property is to make the property your main residence. This is a great option if you don’t currently own another property. It might also be a good choice if the inherited property would be a step-up from your current home.

Income tax on inherited property

You will only be required to pay income tax on an inherited property if you decide to keep the property and rent it out. Income tax will be payable on any profit you make from the rental payments.

Shared inheritance – inheriting a house with siblings

Inheriting a house with your siblings can have added complications if not everyone is in agreement about what to do with the property.

Can an executor sell property without all beneficiaries approving?

If you cannot agree on a way forward, and all parties are equal beneficiaries, no party can force a sale.  The executor is included in that.

If you reach an impasse, and those who want to keep the property are not in a position to buy it, you can approach the courts and ask them to order a sale. To do this, you will need to demonstrate that you have already approached the other parties (either directly or via a solicitor) in writing. You should outline the reason for wanting a sale and give them an opportunity to refute the reason. It is wise to keep in mind that a court order has the potential to cause a significant family rift. For this reason, it is advisable to explore all other mediatory options before resorting to this measure.

Should I sell or rent out the house I inherited?

An inherited property can be an amazing gift from a loved one. It can, however, also bring all sorts of practical, financial and emotional challenges.

Once the property has been through probate, you will have several options.

Move into the property

 If the property you’ve inherited meets your personal needs, you may decide to live in it yourself.

Rent it out

Keeping an inherited property and renting it out could provide an additional income. Becoming a landlord does also bring certain responsibilities, however.

Sell it

For most people, selling inherited property is the easiest route for them and their family. The costs of maintaining a second property can be a significant financial burden. This means most inherited property owners will seek a quick sale.

If you decide to sell your inherited property, you will need to consider the options available to you. It’s important that you select the method of sale that best suits your personal circumstances.

Selling an inherited house UK – what are my options?

If you decide to sell an inherited property, you have a few different options. These are the most popular:

Selling inherited property on the open market

Listing your inherited property on the open market is the most common way to sell. It is also the best way to achieve the highest price from a sale. Estate agents can provide you with a property valuation, organise viewings, help with negotiations and provide support in any situations that arise once you have a buyer in place. That said, selling your house on the open market comes with no guarantees. It currently takes an average of around 7 months to sell a house on the open market. Add probate to this, and you could easily be looking at well over a year.

Selling an inherited property at auction

Selling a property at auction has the potential to offer a quicker sale. It is worth keeping in mind, however, that there is no guarantee that your property will sell on auction day. Around 30% of auction properties fail to sell. If your inherited property doesn’t sell at auction, it can be very difficult to sell the property on the open market, as potential buyers may already have seen it advertised at a low ‘guide price’ prior to the auction.

Selling inherited property to a cash home buyer

If you want to sell inherited property quickly, a cash home buyer can be an attractive option. Once you have been through probate, a genuine cash buyer can buy your inherited property in as little as 7 days. You will need to be willing to accept less than market value for the property, but in return, a property buying company can offer a quick and guaranteed sale, with none of the hassle or time uncertainty of selling on the open market. If you’re interested in finding out how much a cash home buyer will offer to buy your property directly, simply fill out our estimate form or call our friendly team here at Quick Move Now on 0800 068 3366.

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Beth Lane

Beth Lane

As an integral part of the marketing team, Beth is responsible for creating Quick Move Now’s external communications and dealing with national and regional press enquiries.

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