What to do when you inherit a property

Inheriting a property is a significant life event that can come with a mix of emotions, responsibilities, and decisions.

The impact of property inheritances is poised to grow even further over the coming years. Research by the Resolution Foundation quoted in The Times found that property inheritances are on track to double over the next two decades and that the UK could reach ‘peak inheritance’ in the 2040s as the baby boomer generation passes on their wealth. 

Whether the property has been passed down through generations or acquired unexpectedly, understanding the steps to take and options available to you is crucial. 

From legal considerations to practical decisions, here's a comprehensive guide on what to do when you inherit a property.

Finding the Will 

One of the crucial first steps is to establish your legal relationship with the property. Did the person who died live a Will? Are you named as a beneficiary (which means you have legal rights)? Are you an executor (which means you’re responsible for sorting out the estate)?

If there isn’t a Will the next of kin can apply for a ‘grant of administration’ to prove they have the legal right to deal with the estate. However, if there’s no Will, it will fall to the courts to decide who inherits what.

Going through probate

Probate is the legal process that occurs after someone passes away, specifically regarding the distribution of their estate and assets according to their Will. This can be a lengthy process that takes up to a year to complete. However, once it’s finalised ownership of the property will be transferred to you.

The mortgage

If you inherit a property with a mortgage, you’ll be responsible for meeting the repayments as soon as the property is released to you. At this point you can take out a new mortgage on the property in your name.

Alternatively, you may choose to sell the property to pay off the mortgage. This option can relieve you of the financial burden and provide you with a financial asset that can be used for other purposes.

Tax

Inheriting a property can have various tax implications depending on the property's value, your intended use of the property, and other factors. Here are some common tax considerations:

• Inheritance Tax: The rules around who pays what can get complicated. For example, there’s no inheritance tax to pay if the estate is left to a spouse or civil partner. Also, there’s no inheritance tax to pay on an estate worth less than £325,000. If the estate is worth more, you only pay inheritance tax on anything above this amount.

• Capital Gains Tax: If you decide to sell the inherited property, you might be subject to Capital Gains Tax on any increase in the property's value between the time you inherited it and the time you sold it.

• Income Tax: If you rent out the inherited property, the rental income could be subject to Income Tax. However, there are some deductions and allowances available for expenses related to maintaining and managing the property, which can help offset the taxable income.

Decide what to do with it

One of the most significant decisions is determining how you plan to use the inherited property. You have several options:

• Residence: You could choose to live in the property, especially if it holds sentimental value or is conveniently located. As mentioned, if there’s a mortgage on the home, you’ll need to put it into your name. 

• Rental property: If the property is in a prime rental location, you might consider generating income by renting it out. If you decide to do this you'll need to report your rental income.

• Sell: Selling the property might be the best option if you're not interested in owning or managing it. This can also provide a financial boost.

• Holiday home: If the property is located in a desirable spot, it could become your personal getaway.

Estate planning 

Inheriting a property might also prompt you to consider your own estate planning. You might want to update your will to include the newly acquired property and make decisions about how it should be handled after your passing.

Emotional considerations 

While practical and financial decisions are critical, don't underestimate the emotional aspect of inheriting a property. It may hold sentimental value, memories, and family history. Take the time to reflect on these emotions and consider how they influence your decisions about the property's future. 

Throughout the entire process, it's wise to consult with professionals who specialise in the relevant areas. Their expertise will ensure you make well-informed choices and navigate the legal and financial complexities. Let us know if you’d like us to put you in touch with the right people.

Inheriting a property can be a mix of opportunities and challenges. But whether you choose to reside in the property, rent it out, or sell it, the key is to make decisions that align with your financial goals and personal aspirations.

Please get in touch if you’d like to chat.