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What Happens When You Inherit a House?

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Inheriting a house can be both a blessing and a challenge, so what happens when you inherit a house?

Whether it’s a cherished family home filled with memories or a property that needs significant work, understanding your next steps is essential. This guide will walk you through what happens when you inherit a house in the UK, providing practical advice and a real-life example to help you get through this significant life event.

Table of Contents

What Happens When You Inherit a House?

These are important steps before you can sell your inherited home:

1. Legal and Administrative Steps

When you inherit a house, the first step is to handle the legal and administrative tasks. This includes:

  • Obtaining a Grant of Probate: If the property was left to you in a will, you will need to apply for a Grant of Probate. This legal document gives you the authority to deal with the deceased’s estate, including the property.
  • Transferring Ownership: Once probate is granted, the property can be transferred into your name. This involves updating the Land Registry records.

 

2. Financial Considerations

Inheriting a property comes with financial responsibilities:

  • Inheritance Tax: In the UK, inheritance tax may be payable if the estate’s value exceeds the threshold (£325,000 as of 2024). The tax rate is typically 40% on the amount above this threshold.
  • Capital Gains Tax: If you decide to sell the property, you may be liable for capital gains tax on any increase in value since the date of inheritance.
  • Ongoing Costs: Consider the ongoing costs of maintaining the property, such as council tax, utilities, and insurance.

 

3. Deciding What to Do with the Property

You have several options when it comes to an inherited property:

  • Keep and Live In It: If the property holds sentimental value or suits your living needs, you might choose to move in. This can be a straightforward option, but consider the costs of any necessary renovations.
  • Rent It Out: Renting the property can provide a steady income stream. Ensure you understand the responsibilities of being a landlord and comply with rental regulations. There’s also income tax to consider.
  • Sell It: Selling the property can provide a lump sum of money. This might be the best option if you don’t want the hassle of maintaining or renting it out. Be prepared for potential capital gains tax and the costs associated with selling a property.

Real-Life Example

Consider the case of Jane, who inherited her parents’ home in Leeds. The house was in good condition, but Jane already owned a home and didn’t want to become a landlord.

She decided to sell the property.

Jane got in touch with us, and when we looked at the property, we suggested that, as it was in good condition and she was not in a hurry to sell, she should consider selling via an estate agent.

After obtaining probate and transferring ownership, she worked with an estate agent to put the house for sale. After a couple of abortive sales, first-time buyers changing their minds, and another buyer being refused a mortgage, she got lucky with a third buyer who wanted to live on that street.

The sale went smoothly, and Jane used the proceeds to pay off her mortgage and invest in her children’s education.  It took around 11 months from start to finish, but Jane got the price she wanted.

Key Steps and Considerations

When it comes to selling inherited home, here are key steps and some considerations:

StepDescription
Obtain Grant of ProbateLegal authority to manage the deceased’s estate
Transfer OwnershipUpdate Land Registry records to reflect new ownership
Assess Inheritance TaxDetermine if inheritance tax is payable based on estate value
Consider Capital Gains TaxEvaluate potential tax if selling the property
Decide Property’s FutureOptions include living in, renting out, or selling the property
Manage Ongoing CostsAccount for council tax, utilities, insurance, and maintenance expenses
What Happens When You Inherit a House
If you inherit a house with siblings, decisions must be made jointly.

What to do with an Inherited Property?

  • Keep and Live In It: Suitable for those needing a home or valuing sentimental attachment.
  • Rent It Out: Ideal for generating rental income but requires landlord responsibilities.
  • Sell It: Provides a lump sum but involves selling costs and potential capital gains tax.

Different Circumstances

  • Inheriting with Siblings: If you inherit a house with siblings, decisions must be made jointly. Options include selling the property and splitting the proceeds, renting it out, or one sibling buying out the others.
  • Mortgage on Inherited Property: If the inherited property has a mortgage, you will be responsible for the repayments. Some lenders offer a grace period during probate, but you must pass affordability checks to continue the mortgage.
  • Living in the Property Before Probate: You cannot make significant changes or move into the property before probate is complete. However, in some cases, the executor may allow it if it makes sense for maintenance and security reasons.

Do I have to pay inheritance tax on my parents' house?

Yes, if the estate’s value exceeds the threshold of £325,000, inheritance tax is payable on the amount above this threshold.

Can I live in the inherited house before probate?

Generally speaking, no. The property must go through probate before you can legally take possession or make significant changes.

However, if there are safety concerns that a sibling can move in, potentially paying a reduced rent until probate is completed or the property is sold, this must be in agreement with other beneficiaries and the approval of the executor.

What happens if I inherit a house with a mortgage?

You will be responsible for the mortgage repayments. If the deceased had life insurance, it might cover the mortgage. Otherwise, you may need to sell the property or take out a new mortgage in your name.

How do I avoid capital gains tax on an inherited property?

You can avoid capital gains tax if the inherited property becomes your main residence. Otherwise, you will owe tax on any profit made from the sale.

Different Methods of Sale

Selling your inherited house is a significant decision that requires careful consideration.

By weighing the pros and cons of different selling methods, understanding the legal and financial implications, and considering the emotional aspects, you can make an informed choice that best suits your family’s needs.

Whether you opt for the speed and certainty of Property Saviour or the traditional route of an estate agent, the key is to ensure the process is as smooth and stress-free as possible.

 

Selling RouteProsCons
Property Saviour– Speed
– No Estate Agent Fees
– No Surveys or Valuations
– Guaranteed Sale
– Legal Fees Covered

– Potential Lower Sale Price

Estate Agent

– Potential Higher Sale Price
– Negotiation Opportunities

– Longer Selling Process
– Estate Agent Fees
– Uncertainty

Why Choose Property Saviour?

Here why our sellers love our service:

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Property Saviour Price Promise

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  • Be careful with ‘cash buyers’ who require a valuation needed for a mortgage or bridging loan.
  • These valuations or surveys result in delays and price reductions later on.
  • We are cash buyers.  There are no surveys.
  • We always provide proof of funds with every formal offer issued.
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