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The True Costs of Inheriting a Property in the UK

Property Saviour » Inherited Property » The True Costs of Inheriting a Property in the UK

Inheriting a property can be a bittersweet experience. While it’s wonderful to receive such a significant gift from a loved one, it also comes with various costs and responsibilities that many people are unprepared for.

In this comprehensive guide, we’ll walk you through the various expenses you may encounter when inheriting a property in the UK, from inheritance tax to ongoing maintenance costs.

Table of Contents

True Costs of Inheriting a Property in the UK

Here are all the costs of inheriting a property:

  • Inheritance tax (IHT): 40% on the portion of the estate above £325,000 (with exceptions)
  • Stamp duty land tax (SDLT): Only applicable if you sell or buy a share of the inherited property
  • Capital gains tax (CGT): Payable on any profit made when selling the inherited property
  • Mortgage payments: Ongoing responsibility if there is an outstanding mortgage on the inherited property
  • Maintenance and repairs: Ongoing costs to keep the inherited property in good condition
  • Insurance: Buildings and contents insurance to protect your inherited asset
  • Utilities: Electricity, gas, water, and council tax bills for the inherited property
  • Legal fees: Conveyancing and probate fees if selling or transferring ownership of the inherited property
  • Estate agent fees: Typically range from 0.5% to 3% + VAT of the sale price when selling through an estate agent
  • Auction fees: High auction entry fees and commission around 2.5% + VAT when selling through an auctioneer

What is inheritance tax and how much will I have to pay?

Inheritance tax (IHT) is a tax on the estate (property, money, and possessions) of someone who has passed away. The standard inheritance tax rate is 40%, which is charged on any portion of the estate that exceeds the £325,000 threshold (known as the nil-rate band).
However, there are some exceptions and additional allowances:

  1. If you leave everything above the £325,000 threshold to your spouse, civil partner, a charity, or a community amateur sports club, there is normally no inheritance tax to pay.
  2. If you’re married or in a civil partnership and your estate is worth less than your threshold, any unused threshold can be added to your partner’s threshold when you die.
  3. If you give away your home to your children (including adopted, foster, or stepchildren) or grandchildren, your threshold can increase to £500,000.
  4. It’s important to note that the personal representative (executor or administrator) for the estate usually pays any inheritance tax due before distributing the inheritance.

Will I have to pay stamp duty on an inherited property?

The good news is that you do not have to pay stamp duty land tax (SDLT) on a property that you inherit. Stamp duty only applies when you buy a property or land over a certain price in England and Northern Ireland.

However, if you decide to sell the inherited property or buy out a sibling’s share, stamp duty may come into play:

  1. If the property is worth over £125,000 and will be your main residence, you will need to pay stamp duty at the standard rates.
  2. If the inherited property is an additional property (i.e., not your main residence), you must pay the higher stamp duty rates for second homes, which start at 3% for properties worth more than £40,000.

Do I need to pay capital gains tax on an inherited property?

When you inherit a property, you do not have to pay capital gains tax (CGT) immediately. However, if you later sell the property for a profit, you may need to pay CGT on the increase in value between the time you inherited it and the time you sold it.

The current capital gains tax rates for residential properties are:

  1. 18% for basic rate taxpayers (total taxable income up to £50,270)
  2. 28% for higher or additional rate taxpayers (total taxable income above £50,270)

 

There are some deductions and allowances that can help reduce your CGT bill:

  • The annual tax-free allowance for individuals is £6,000 for the 2023-2024 tax year.
  • You can deduct certain costs from your total gain, such as solicitor’s fees, estate agent fees, and the cost of any significant improvements you made to the property.
  • Thanks to private residence relief, if you inherit a property and it becomes your main residence, you will not have to pay capital gains tax when you sell it.

What other costs should I be aware of when inheriting a property?

In addition to the taxes mentioned above, there are several other costs to consider when inheriting a property:

  • Mortgage payments: If the deceased had an outstanding mortgage on the property, you’ll need to decide whether to continue paying it or sell the property to pay off the debt.
  • Maintenance and repairs: As the new owner, you’ll be responsible for all ongoing maintenance and any necessary repairs, which can add up quickly.
  • Insurance: To protect your new asset, you’ll need to arrange building insurance (and contents insurance, if applicable).
  • Utilities: You’ll be responsible for paying all utility bills, including electricity, gas, water, and council tax.
  • Legal fees: If you decide to sell the property or transfer ownership, you’ll need to factor in legal fees for conveyancing and probate.

 

Here’s a quick overview of the potential costs in this table:

CostDescription
Inheritance tax40% on the portion of the estate above £325,000 (with exceptions)
Stamp dutyOnly applicable if you sell or buy a share of the property
Capital gains taxPayable on any profit made when selling the property
Mortgage paymentsOngoing responsibility if there is an outstanding mortgage
Maintenance and repairsOngoing costs to keep the property in good condition
InsuranceBuildings and contents insurance to protect your asset
UtilitiesElectricity, gas, water, and council tax bills
Legal feesConveyancing and probate fees if selling or transferring ownership
costs when inherited property
By opting for a cash buyer, you might not achieve full market value but will certainty reduce your costs and stress.

How can I reduce the costs of inheriting a property?

While some costs, like maintenance and utilities, are unavoidable, there are a few ways you can potentially reduce the tax burden of inheriting a property:

  1. Use inheritance tax allowances and exemptions, such as leaving the property to a spouse or civil partner or increasing the threshold by leaving it to children or grandchildren.
  2. If you plan to sell the property, consider doing so within two years of inheriting it. This way, you can potentially avoid paying capital gains tax on any increase in value.
  3. If you decide to rent out the inherited property, you can offset certain expenses (like repairs and agent fees) against your rental income for tax purposes.
  4. If property is proving to problematic to sell, why not sell it to a cash buyer such as Property Saviour? You will get speed and certainty of sale without the hassle.

 

Selling the Inherited Property

If all beneficiaries agree that selling the property is the best course of action, consider the following options:

Method

Pros

Cons

Estate Agent

– Provide valuation and marketing advice
– Market the property through various channels
– Identify potential buyers and conduct viewings
– Negotiate offers and guide through the sales process
– Access to property portals like Rightmove for wide exposure

– Fees typically range from 0.5% to 3% + VAT of the sale price
– Sale price and timeline not guaranteed
– Buyers can pull out or renegotiate the price after the survey
– Process can take around 6 months on average

Auctioneer

– Quick sale, typically completing within 28 days of auction
– Contracts exchanged on auction day, providing certainty
– Can attract serious cash buyers and investors
– Competitive bidding may drive up the price
– Transparent process with no risk of gazundering

– High auction entry fees and commission around 2.5% + VAT
– 10% deposit due on auction day, rest in 28 days – fast timeline
– Sale and price not guaranteed. Depends on interest on the day
– Sells at just 10% above guide price if low interest
– Typically, a 2-3 month tie-in period even if the property doesn’t sell

Property Saviour

– Genuine cash buyer providing speed and certainty
– Average completion in 10 days, fastest in 5 days
– Offer price is what you receive, no renegotiating
– No fees to pay. They contribute £1,500 to legal costs
– No surveys are required, so no delays or price renegotiation
– Sensitive to the seller’s situation and aim to help

– May offer less than open market value for fast cash sale
– Private sale, so less exposure than estate agent or auction

 

In summary, selling to Property Saviour provides the fastest, most certain sale compared to estate agents or auctions. Our cash offer and quick timeline of 10 days on average help reduce holding costs for the seller.  Unlike auctions, where you are tied into a contract for at least two months post-auction, there’s nothing to sign with us.

With no fees, no price renegotiation after surveys, and £1,500 contribution to legal costs, selling to Property Saviour can work out more cost-effective overall, especially factoring in the opportunity cost of a long, drawn-out sale with an estate agent. However, the trade-off is likely getting a lower price than on the open market in exchange for speed and certainty.

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  • These valuations or surveys result in delays and price reductions later on.
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  • We always provide proof of funds with every formal offer issued.
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