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A Guide To Inheriting A House

January 27, 2022

Inheriting a house can be a very upsetting time for you and your family. When you’ve just lost a loved one, it can be very emotional and the decision on what to do with their property can be tough.

You may have a lot of questions about the process of obtaining the rights to the house, paying tax and what your options are going forward regarding the property.

In order to help you make the right decision for you and your family, we’ve put together this guide that will help you understand what happens when you inherit a house, and what you can do next.

The probate process

Probate is the process of proving a will is valid and confirming who has the authority to distribute the estate of the person who has passed away.

If the person who you lost left a will, then they will have named executors that are responsible for settling all outstanding debts, and then distributing the estate to the beneficiaries. An executor can be a solicitor, family member or friend to the deceased.

The probate process can take several months to complete, and there is little that can be done in that time with the property. One step that can be taken is to contact the mortgage lender (if the property still has a mortgage) and let them know that the owner has passed away, and you’re now in the probate process.

If no will is left, who inherits a property?

If a person has passed away without having a will or a spouse, then you will need to apply for a grant of representation to access their bank account. You will then be able to use their funds to pay for their funeral and arrange for their assets to be sold or passed on to beneficiaries, as well as for settling debts and paying tax.

Inheriting a house that still has a mortgage

If you inherit a house that still has a mortgage left to pay, then this can be a complicated issue.

Sometimes the deceased may have life insurance that can be used to clear the mortgage, however, if the person you have lost did not have a life insurance policy, you will need to find out what is required from the mortgage lender.

There will be a section in the mortgage policy documents on what happens when the deceased passes away, however, it’s common to find that payments are frozen during the probation period.

As soon as the will has been settled, then the property will become yours. You will need to talk to the lender about transferring the mortgage into your name, which could cause issues if you’ve already got a mortgage for your current property.

Another option is selling the inherited property to pay off the mortgage, as you could generate funds quickly by selling to a cash house buyer.

Paying tax on inherited property

There are several types of taxes that could be due on the property that you have inherited:

  • Income tax
  • Inheritance tax
  • Capital gains tax

Income tax

You are eligible to pay income tax on a property if you start earning an income from the property, such as renting out the property.

Inheritance tax

If the total value of the estate is worth more than £325,000, then 40% of everything over £325,000 will be owed as tax. 

For example, if the total value of the state was £400,000, then £75,000 is eligible to be taxed. This means a sum of £30,000 is owed in inheritance tax.

Capital gains tax

You will only pay capital gains tax if you choose to sell the property that you’ve inherited, and if the property has increased in value you will need to pay capital gains tax on the profit.

If the profit you make on the inherited property is less than £12,000, you will need to pay capital gains tax unless you have used up your annual allowance.

Stamp duty on inherited property

Stamp duty does not apply when you inherit a house, however if another beneficiary (such as one of your siblings) wants to buy you out, then stamp duty may apply.

Transfer the ownership of an inherited property

During the probate process, the executor of the will must transfer the ownership of the property to the beneficiaries names.

How inheriting a property could affect your future house purchases

If you inherit a house which happens to be your first home, this could have some negative implications if you’d like to purchase a house in the future.

You could no-longer be eligible to use a Government bonus on a help-to-buy ISA, as well as first-time buyers relief for Stamp Duty.

Inheriting a property with family

If you have inherited a house along with other people, such as your siblings, then each decision you make must be part of a group.

The most important decision you need to make is what happens to the property.

Selling the property

Selling the property is the simplest option to take, as once the property is told you just need to split the sale price between the beneficiaries.

Rent out the property

If you choose to rent out the property, then things can be a little more complicated.

Will you manage the property for tenants, or will you get a company to do it?

How will you split the costs to ensure the property is up to standard for tenants, and how will you split the income?

One sibling buys the others out to own the property

If one sibling wants to buy the other sibling(s) out and solely own the property, the amount they should pay or how much rent they should pay to live in the property needs to be universally decided between the beneficiaries.

Renting out an inherited property

One option that people consider when they inherit a property is to rent the property out.

This enables the person who inherits the property to gain another income stream, and you will become a landlord. 

If you’d like to rent out your inherited property, then talk to an estate agent about renting the property out.

There are drawbacks to renting out an inherited property, as you must ensure that the property is up to scratch for potential tenants and ensure that the property is maintained whilst they live there.

Selling an inherited property

Another option when you inherit a property is to sell it straight away, and there are a few routes that you can go down in order to sell your property.

Selling a property can be an emotional challenge, as you’ll be clearing out the property containing the possessions of your loved one.

It can also be a physically demanding challenge to remove the items from the property, and you can either keep some personal items, send items to a charity shop, or take things to a waste disposal centre.

Selling through an estate agent

Selling a property through an estate agent is a common way to sell a house.

It’s common for beneficiaries to invite a few estate agents to the property to gain an understanding of the value of the house, as well as gain an idea of what it could be worth once renovated. 

Usually, people who inherit a home from an older relative will renovate the home before selling it. This is to update the home to modern standards which will increase the value of the home. Doing this does, however, take a lot of time and money. 

Selling to a house buyer

An alternative to ‘doing up’ a home to either sell or rent out the inherited property is to sell directly to a house buyer, such as Halo House Buyers.

A house buyer will purchase your inherited house quickly, and for cash. The condition of the house does not matter, saving you the time and money you’d spend to get the house to a modern standard.

To find out more about cash buyers why not get in touch with Halo House Buyers today for a no-obligation cash offer for your inherited property.

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