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Inheriting a House from Your Parents in the UK

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Inheriting a house from your parents is a significant and emotional milestone, one that requires thoughtful consideration.

Should it be sold, rented out, or occupied by a sibling? Then, there are important tax implications to keep in mind.

In this guide, we do our best to cover this subject comprehensively.

Table of Contents

Handling a Mortgage on an Inherited Property

Inheriting a property with a mortgage adds another lay of complexity.

Here are your options:

  • Contact the Lender: Inform the mortgage lender about the inheritance and discuss the terms.
  • Grace Period: Many lenders offer a grace period for pausing payments until probate is complete.
  • Repayment Options: You can use other assets from the estate, such as a life insurance policy, or take out a new mortgage in your name.
  • Sell the Property: Selling the property can pay off the mortgage, with any remaining funds distributed to beneficiaries.
 

If you have an inherited house that’s paid off, it makes life a lot easier.

 

If you have inherited a house with equity release plan, it will need to be paid off quickly.  This is because equity within the property will erode quickly due to high interest rates and charges.

Inheritance Disputes Between Siblings

Inheritance disputes between siblings can be emotionally and legally challenging. 

Common causes include:

  • Unequal Distribution: Disputes often arise when one sibling receives more than others.
  • Promises and Expectations: If a sibling was promised a larger share but it wasn’t specified in the will, disputes can occur.
  • Validity of the Will: Challenges may arise if there are suspicions about the will’s validity, such as undue influence or lack of mental capacity.
  • Beneficiaries can move into property, causing disagreements.

Resolving Disputes

If you have inherited a property from your father and beneficiaries are in disagreement, these are possible solutions:

  • Mediation: An independent mediator helps siblings discuss and resolve their issues.
  • Collaborative Law: Each party has a collaborative lawyer to offer legal advice and solutions.
  • Arbitration: A binding decision is made by an arbitrator after hearing all arguments.
  • Court: As a last resort, disputes can be resolved in court, though this is time-consuming and costly.

Do I have to pay Inheritance Tax when inheriting a house from my parents?

Inheritance Tax (IHT) is a tax levied on the estate of a deceased person, including any property, money, and possessions. The standard IHT rate is 40%, but it is only charged on the portion of the estate that exceeds the tax-free threshold, which is currently £325,000 (2023/24 tax year). If the value of your parents’ estate, including the house, is below the £325,000 threshold, you will not have to pay Inheritance Tax. However, if the value exceeds the threshold, you may be liable for IHT on the excess amount. There are certain reliefs and exemptions that can reduce or eliminate the IHT liability, such as:

  • Spouse or civil partner exemption: If your parents left their entire estate to their surviving spouse or civil partner, no IHT is due.
  • Residence Nil-Rate Band (RNRB): If your parents’ home is left to direct descendants (children or grandchildren), an additional tax-free allowance of £175,000 (2023/24 tax year) may be available, effectively increasing the threshold to £500,000.
  • Charitable donations: If your parents left a portion of their estate to a qualifying charity, the IHT rate may be reduced to 36%.

 

It’s essential to seek professional advice from a solicitor or tax specialist to understand your specific circumstances and potential IHT liabilities.

Will I have to pay Capital Gains Tax (CGT) when selling an inherited house?

Capital Gains Tax (CGT) is a tax on the profit made from selling an asset, such as a property, that has increased in value since it was acquired. When you inherit a property, you do not pay CGT at the time of inheritance. However, if you decide to sell the inherited property later, you may be liable for CGT on any increase in value since the date of inheritance. The amount of CGT you pay depends on your individual tax rate and the gain made on the sale. For residential properties, the CGT rate is:

  • 18% for basic rate taxpayers
  • 28% for higher or additional rate taxpayers

 

To calculate the gain, you must deduct the property’s value at the time of inheritance, any allowable expenses (such as legal fees and improvement costs), and your annual CGT allowance (£12,300 for the 2023/24 tax year) from the sale price. Example:

  • Value of the property at the time of inheritance: £200,000
  • Sale price: £300,000
  • Allowable expenses: £5,000
  • Your annual CGT allowance: £12,300

 

Gain = (£300,000 – £200,000 – £5,000 – £12,300) = £82,700

If you are a higher-rate taxpayer, your CGT liability would be £82,700 x 28% = £23,156. It’s important to keep accurate records of the property’s value at the time of inheritance, any expenses incurred, and the sale price to correctly calculate the CGT liability.

inheriting a house from parents
If you decide to buy out the shares of any co-owners (e.g., siblings) in the inherited property, you may be liable for SDLT on the portion you are purchasing.

Do I need to pay Stamp Duty Land Tax (SDLT) when inheriting a house from my parents?

No, you do not have to pay Stamp Duty Land Tax (SDLT) when inheriting a property from your parents. SDLT is a tax payable when you purchase a property or land in England and Northern Ireland. However, if you decide to buy out the shares of any co-owners (e.g., siblings) in the inherited property, you may be liable for SDLT on the portion you are purchasing.

The SDLT rate will depend on the value of the share you are buying and whether you already own another property. For example, if you inherit a 50% share in a property worth £400,000 and decide to buy the remaining 50% from your sibling, you would need to pay SDLT on the £200,000 you are purchasing. The SDLT rate would be:

  • 0% on the first £125,000
  • 2% on the remaining £75,000 (£1,500)

 

If you already own another property, you would be subject to the higher SDLT rates for additional properties, which could significantly increase the tax liability. It’s essential to seek professional advice from a solicitor or tax specialist to understand your specific circumstances and potential SDLT liabilities when buying out co-owners of an inherited property.

Understanding the Inheritance Process

Secure the Property

  1. Lock all doors and windows
  2. Turn off utilities (water, gas, electricity) at the mains
  3. Store valuable or sentimental items elsewhere
  4. Consider installing a CCTV system if the property will be vacant for an extended period.

 

Inform Companies

  • Notify the local council about the change of ownership
  • Cancel any existing utility accounts and council tax payments
  • Arrange for unoccupied property insurance

 

Obtain Probate

  1. If your parents left a will, apply for a Grant of Probate
  2. If there is no will, apply for Letters of Administration
  3. The probate process can take several weeks or months

 

Value the Property

  • Obtain professional valuations from estate agents or property experts
  • Research recent sale prices of similar properties in the area
  • Consider the property’s condition, location, and potential for improvements

 

Decide on the Next Steps

  1. Sell the property
  2. Rent out the property
  3. Live in the property yourself
  4. Transfer ownership to co-owners (e.g., siblings)

 

Seek Professional Advice

  • Consult a solicitor who is property tax specialist
  • Understand your tax liabilities (Inheritance Tax, Capital Gains Tax, Stamp Duty Land Tax)
  • Explore available reliefs and exemptions.

Key Tax Considerations

TaxExplanation
Inheritance Tax– Standard rate: 40% on the portion of the estate exceeding £325,000 (2023/24)
– Spouse/civil partner exemption and Residence Nil-Rate Band may apply
Capital Gains Tax– Payable on the profit made from selling an inherited property
– Rate: 18% for basic rate taxpayers, 28% for higher/additional rate taxpayers
– Allowance: £12,300 (2023/24)
Stamp Duty Land Tax– Not payable when inheriting a property
– Payable when buying out co-owners’ shares in the inherited property

What to Do with the Inherited Property

These are your options.

Selling the Property

Selling an inherited property can be a practical option, especially if you must settle debts or distribute the proceeds among multiple beneficiaries. Here are the steps to follow:

  1. Clear the Property: Remove personal belongings and consider hiring a professional clearance service.
  2. Make Necessary Repairs: Address any maintenance issues to make the property more appealing to buyers.
  3. Get Professional Valuations: Obtain valuations from multiple estate agents to set a competitive price.
  4. Market the Property: List the property with an estate agent or consider selling at auction for a quicker sale.
  5. Understand Tax Implications: Be aware of potential CGT liabilities and keep records of all expenses related to the sale.

 

Renting Out the Property

Renting out an inherited property can provide a steady income stream, but it also comes with responsibilities:

  1. Ensure the Property is Habitable: Make necessary repairs and obtain safety certificates (e.g., Gas Safety Certificate, Energy Performance Certificate).
  2. Get Landlord Insurance: Standard home insurance won’t cover rental properties, so arrange for specialist landlord insurance.
  3. Understand Tax Obligations: Rental income is taxable, and you may need to complete a self-assessment tax return.
  4. Consider Property Management: If you don’t live nearby or lack experience, hiring a property management company can be beneficial.

 

Moving into the Property

If you decide to move into the inherited property, consider the following:

  1. Transfer the Mortgage: If the property has a mortgage, you’ll need to transfer it to your name and pass affordability checks.
  2. Update Utilities and Services: Set up utility accounts in your name and arrange for any necessary services (e.g., internet, phone).
  3. Make it Your Own: Personalise the property to make it feel like home.

 

Transferring Ownership

If you wish to transfer ownership of the property to another family member or co-owner, follow these steps:

  1. Determine Ownership Structure: Check if the property is owned as joint tenants or tenants in common.
  2. Complete Necessary Forms: Fill out the appropriate Land Registry forms (e.g., Form AP1, Form AS1).
  3. Pay Any Applicable Fees: Use the Land Registry fee calculator to determine the correct fee.
  4. Submit Documents: Send the completed forms, supporting documents, and fee to HM Land Registry.

 

does wife automatically inherit husband's estate
There are three different methods to sell an inherited property, each comes with its own pros and cons.

Insurance Considerations for an Inherited Property

When you inherit a property, ensuring it is adequately insured is crucial. Here are the types of insurance you may need:

  • Unoccupied Insurance: If the property will be vacant for more than 30 days, you will need unoccupied home insurance. This typically requires regular checks on the property and maintenance of visible areas.
  • Landlord Insurance: If you plan to rent out the property, standard home insurance won’t suffice. Landlord insurance covers rental properties and includes liability coverage.
  • Second Home Insurance: If you move into the inherited property but keep your original home, you may need a second home insurance policy.

Living in the Inherited House Before Probate

Living in an inherited house before probate is granted can be complicated. Legally, the property is not yours until probate is complete. However, there are situations where living in the property might be necessary or beneficial:

  • Caretaking: If the property needs maintenance or security, living there temporarily can be practical.
  • Executor’s Decision: The executor of the will has the authority to allow someone to live in the property, provided it doesn’t conflict with the will’s terms or other beneficiaries’ rights.

Emptying the House Before Probate

Emptying an inherited house before probate can be a sensitive task. Here are some steps to consider:

  1. Inventory: Create a detailed inventory of all items in the house.
  2. Valuables: Secure valuable items and important documents.
  3. Sentimental Items: Discuss with family members to decide on the distribution of sentimental items.
  4. Professional Help: Consider hiring a professional clearance service to handle the process efficiently.

 

Here at Property Saviour, we will offer you a free house clearance should you decide to sell to us.

Methods of Sale: Pros and Cons

When it comes to selling a property, there are several methods to consider, each with its own set of advantages and disadvantages. This guide will help you understand the pros and cons of selling through a property auction, an estate agent, and a cash-buying company like Property Saviour.

MethodProsCons
Property Auction– Quick Sale: Typically completes within 28 days.
– Chain-Free: No dependency on other transactions.
– Transparency: The sale is public and competitive.
– Ideal for Unusual Properties: Attracts investors and developers.
– High Fees: Entry fees and commissions can be expensive.
– No Guarantee of Sale: Property may not sell if the reserve price isn’t met.
– Price Fluctuations: The final sale price can be unpredictable.
– Privacy Concerns: Public viewings and auction process.
Estate Agent– Professional Marketing: Agents handle advertising and viewings.
– Market Knowledge: Agents provide accurate valuations and advice.
– Negotiation Skills: Agents can negotiate better offers.
– Wider Audience: Access to a broad network of potential buyers.
– Fees: Typically 0.5% to 3% + VAT of the sale price.
– Time-Consuming: Sales can take several months to complete.
– Chain Dependency: Sales can fall through if other transactions fail.
– Over-Valuation Risks: Some agents may overvalue to win your business.
Property Saviour (Cash Buyer)– Speed: Completion in as little as 10 days.
– Certainty: Guaranteed sale with no risk of fall-through.
– No Fees: No estate agent or auction fees.
– Convenience: No need for repairs, viewings, or marketing.
Free house clearance: We’ll clear the house once it is sold to us.
– Lower Offers: Typically 70% of market value.
– Limited Market: Not suitable for those seeking maximum price.
– Perception: May be seen as a last resort option.

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