Selling Inherited Property
Selling inherited property – all you need to know
Someone may be faced with selling inherited property as a result of a death in the family. A home is often inherited by relatives or friends, leaving them with a choice between keeping or selling the property.
Depending on your circumstances, inheriting a house can be a blessing or a challenge, either way you are likely to be unfamiliar with the process. During a time of bereavement, things like dealing with finances, paperwork and property can compound stress during an already difficult time. Many people want to make the process of selling an inherited house or flat as straightforward as possible, others may choose to keep the inherited property.
Selling inherited property is not necessarily simple, cheap or quick, because:
- Selling a property via an estate agent is rarely quick, certain or free from hassle.
- Until property is sold you are responsible for ongoing costs and management of maintenance and any structural or cosmetic work required.
- If the inherited property is in a different area you may have the hassle ofarranging regular visits.
- Sentimental attachment to the property can cause continued stress until sold.
- Dealing with multiple executors and beneficiaries who may have different priorities and expectations.
Most importantly before you even start thinking about selling inherited property, there is a process you need to follow called probate.
Guidelines for selling inherited property
When it comes to selling inherited property, it is important to understand the process of probate.
What is Probate?
After someone has passed away it is necessary to make arrangements for what they leave behind. The process that needs to be followed is called probate and it involves dealing with their estate (including money, possessions and property), their credits and liabilities (loans, mortgages, debts) and their final wishes.
Who can do probate?
If the deceased left a will, they should have specified an executor who is expected to “execute” the Will and complete the probate process. If no executor is named, responsibility will generally fall to the beneficiaries or a blood relative.
Obtaining the Grant of Representation
To execute a Will a Grant of Probate or Letters of Administration are normally required.
The Grant of Representation will make it possible for you to access all of the deceased’s assets, such as their bank accounts. You can obtain the Grant of Probate or Letters of Administration by contacting your local Probate Registry, you will then need to provide a copy of the death certificate and complete the required documents.
Once you have grant of representation, for tax purposes you need to get a probate house valuation. This establishes an open market value for the property. Once the deceased estate has been valued you will need to contact HMRC to pay any inheritance tax due on the estate.
How long does probate take?
On average, probate takes between six to nine months to complete. However, other complications can cause the process to take considerably longer, such as if the Will is contested, or the deceased did not keep clear records of all their assets.
What happens after probate is granted?
Once probate is granted, you can proceed with the sale of the property or with transferring the ownership. However, it is important that both the wishes of the deceased and the beneficiaries are considered.If the property has been left as part of an estate to more than one family member (for example to siblings), there may be some discord about what needs to be done.
Clean out belongings
This can be emotionally difficult, but whether you plan to sell or transfer the property will need to be cleared of previous owner’s belongings.
You may wish to set aside jewellery, paintings, antiques and other items of interest to be valued by an appraiser before deciding whether to sell them or keep them in the family. Anything you do not wish to keep can be given as a gift, donated to charity, or sold online or via car boot sale. Someone has to take responsibility for visiting the property and organising the clear out but make sure all beneficiaries are included in the decision-making process.
Maintenance, security and insurance
Until the property is sold or transferred, someone needs to take responsibility for the ongoing maintenance of the property. This could include organising and paying for garden clearance, house cleaning, re-decoration and general maintenance.
Security of the property is your responsibility. Vacant properties are more at risk of break-ins, winter pipe bursts and squatters. You must check the house insurance covers the property when vacant, many do not. You should also organise regular trips to the property to ensure everything is OK.
Communication with the other executors and beneficiaries is key to avoid prolonging the process and causing upset and disagreement. The executors have the final say but to avoid any legal challenges and arguments that continue long past the inheritance being finalised it is best to discuss things.
Generally dealing with savings and investments is easiest, as once they are converted to cash you merely distribute as per the will and wishes of the deceased. Most issues occur when deciding what to do with the property and its contents. Remember one person’s rubbish is another’s heirloom, so make sure you include all the beneficiaries during the clear out process and before you finalise to disposal of the property.
Method of selling an inherited property:
If you decide to sell there are steps you should take to ready the house for sale and maximise the amount the beneficiaries receive.
Have the home re-valued
As part of probate you will have had the property valued. However, if time has passed you may choose to get an up to date valuation from a reputable estate agent. It is also good to speak to multiple agents to ensure you choose the best one to market the property.
Decide on the method of sale
Once you have reached the decision to sell, you will need to decide on the method of sale. You can list the property on the open market, a traditional means of selling a home. You may also wish to sell the property at auction, or approach investors or professional homebuyers if you wish to secure a quick sale.
Issues to consider if selling an inherited property
- You will need to continue to insure, secure and maintain the property until the sale completes.
- The property could well require expenditure to get it in a saleable condition, you may have to outlay your own cash and time to get this done.
- If the property holds a sentimental attachment, the prolonged sale process of viewings, visits and negotiations may be difficult.
- Often the property you inherit will not be local. Multiple visits during the sale process, can become frustrating and expensive.
- Dealing with estate agents and solicitors can often be a frustrating process, when selling a vacant property which may be some distance away just adds to the difficulties.
- Time it will take to sell with vary by area but on average it will take between 6 and 13 months which is on top of the 6-9 months it takes to get probate.
What happens once the inherited property is sold
Once the property is sold it is the executors responsibility to repay any outstanding liabilities of the estate such as mortgages and inheritance tax. After that the executor will distribute the remaining money to the beneficiaries as per the will. The beneficiaries will not have individual tax to pay in the sum inherited.
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Issues to consider if keeping an inherited property
If you inherit a property, unless specified differently in the will, you essentially have three options – move into and live in the property, let it out as a rental, or selling the property. The default option is for the executor to sell the property and release the equity and distribute the cash as per the wishes of the deceased. However, it is important for the executor to consider the wishes of the beneficiaries at this stage as they may wish to keep the property.
When deciding whether to keep an inherited property the beneficiaries should consider a number of factors.
If there is more than one beneficiary and they don’t want to keep the property together. Then either one has to raise the cash to pay off the other or the executor will have to sell the property so they both receive what is due.
Once the property has probate valuation the inheritance tax liability can be confirmed, this is then settled by the executor from the assets of the estate.
If the beneficiaries keep an inherited property as their main residence there is no capital gains liability. However,if they decide to let, keep vacant or develop the property they will have a capital gain liability. The liability is based on the profit you make between the person’s death and the point of eventual sale.
Capital gains tax kicks in at profit over £11,300*.You will then pay either 18%* or 28%* capital gains tax on any profit over this amount, depending on your overall income. *Figures all for 2017/18 tax year.
Renting out an inherited property
some people turn an inherited property into a rental investment. However, you should bear in mind that as well as capital gain tax there are many issues you may encounter. Often an inherited property will need significant investment to modernise and bring the property into a rentable condition. Once a property is rented there is always the risk of problem tenants, void periods or further property maintenance impacting both your investment and requiring the input of your time.
Renovating an inherited property
Renovating a property for sale at a profit is never the easiest thing, especially for first timers. You have to invest significant sums up front to renovate or re-develop a property and often these costs can spiral. In a market where prices are fluctuating it can be difficult to accurately estimate the eventual resale price at the start of a project so it is difficult to set budgets. It is important to do your sums before committing otherwise you may find that after the costs and capital gains tax are applied it just isn’t worth all the hassle.
Assets that are left behind upon your death become your inheritance.
If you have any assets or wishes after your death then it is important to setup a Will. In your Will, you can then specify who will inherit your property. If no Will exists then it is likely that the property will pass to your legal partner, if you don’t have a partner your closest blood relative is likely to inherit your assets.
If you have decided to sell, you should ready the property as you would any other prior to putting it on the market. This means you should look at decluttering and clearing out items, depersonalising the space, redecorating and making any cosmetic updates, repairs and maintenance, and any other improvements that can boost the property’s appeal to buyers.
This ultimately depends on your reason for selling. If you are sure that you don’t want to keep the home and want a fast, hassle-free transaction, selling for less than market value is one way to achieve this. The loss of a loved one can be an emotionally difficult time as it is, and so a guaranteed, quick sale is preferable over entering a lengthy sale process.
The situation can often arise that one or more party wants to sell the property, while other beneficiaries would like to hold on to it. In these cases, provided all parties are equal beneficiaries, no one party can force the others to sell. However, they can approach the courts and ask them to order a sale. To do this, they will need to demonstrate that they have already approached you (either directly or via solicitor) with written correspondence outlining reasons for the sale, and giving you an opportunity to refute these. This should ideally be a last resort and many families will attempt mediation before entering any further legal disputes.
This is the tax payable on the estate (the deceased’s financials and property) before it can be passed down to the beneficiaries.
The executor of the will is often responsible for calculating this, although help is available on the government website. The tax is payable at a rate of 40 per cent on estates valued over £325,000, with some tax relief possible under certain circumstances.
The estate heirs are responsible for paying any inheritance tax due within six months of the death of the deceased, after which HMRC will begin charging interest on the amount due.
Capital gains tax is payable on the profit made when you sell your home. For example, if you purchased your home for £115,000 and later sold it for £130,000, capital gains tax would be payable on the “gains” (profit) of £15,000.
You will not have to pay any capital gains tax if you sell the home for the same value it was when the owner died. However, if the value has increased during the probate period when selling an inherited house, capital gains tax may be payable.
If you wish to hold on to the property, you can either live in it yourself, have a family member live in it instead. Alternatively, you could also rent it out to private tenants without having to sell it. For more information on later selling an inherited rental property, click here.