Inheriting a property – a Comprehensive Guide by We Buy Any House
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If you’ve recently inherited a property, or know that you’re going to shortly, it can be an incredibly difficult and stressful time in your life. We know that dealing with selling a house is already a huge burden, so we wanted to do what we could to help. Whether you’re looking for advice on how to sell your inherited property, or how you can use it to create an income, we’ve got the answers for you here.
What can I do with an inherited house?
When you inherit a house, it is usually because you’ve lost someone important to you, so your mind is understandably elsewhere. Because of this, you may not always have the time to think about what options there are when you inherit a house and what you can do with it, so we wanted to outline it for you to keep things simple. There are a few options for you, but the most common are –
- Sell the house
- Rent the house out to create a monthly income
- Live in the house yourself if you don’t own your own property
What are the benefits of selling?
There are several reasons that selling your inherited property could benefit you, depending on your circumstances –
- Selling will allow you to release a substantial amount of money that you can use for whatever you choose whether it be funding yourself to buy another house or to fund other investments
- If the house is not in the best condition, you may not have the time, interest, or money to fix it up yourself to make it liveable
- The property still has a mortgage that you want to pay off in full
- It isn’t practical for you to keep it – this is especially relevant for those who have inherited a property far from where they live and so wouldn’t be able to utilise it.
What are the disadvantages of selling?
As with any decision, there are negatives to going ahead with the sale. These are –
- You may be liable to pay capital gains tax upon the sale of the property
- If the property has been left to more than one of you, especially in the case of a family home being left to siblings, it could cause problems if one of you wants to sell and one of you doesn’t
- If your sale takes a long time to complete, which is to be expected as the average house sale in the UK takes over 6 months, you will be liable for this period to pay the mortgage if the house still has one, council tax, and home insurance as well as any utility bills until the house sells
- You may be saying goodbye to a home that you grew up in, which can be incredibly emotional and difficult for many homeowners who are selling an inherited property.
What if I want to rent the property out?
Sometimes, if you’ve inherited a family home, you’re not ready to sell it on, but it isn’t always feasible for you to move in. In this case, some homeowners with an inherited property will choose to rent the house out to make some money without having to say goodbye to the house completely.
The positives of this are –
- It allows you to keep the house until a period where you’re either ready to sell it on, or can continue making an income from it
- The income will cover any mortgage and bills, giving you extra income each month
- There is a chance that the market will improve over time, meaning that the house value increases, and you can sell the house on for a higher amount
- The option of tax reductions on some of the expenses involved in maintaining the property, such as damaged interiors, cleaning, and gardening
This can be a great option if you already own your own house and don’t want to let go of the house that you’ve inherited, especially if you’ve been keen to look into becoming a landlord but not had the opportunity until now. However, there are some negatives to doing this –
- Being a landlord comes with a lot of responsibility, and you will have legal obligations such as fire and gas safety, gas and electrical appliances being maintained and PAT tested, as well as protecting your house by ensuring that you’re renting to the right tenants that won’t damage the property
- You will also be responsible for dealing with any repairs and damage that is caused, especially emergencies such as burst pipes or boiler breakdowns. This can be stressful for you as you will need to be available 24/7 to deal with problems, and can become especially difficult if you don’t live close to the area. This is why, often, landlords will employ an agent close to the property to deal with these issues to lessen the responsibility and stress on themselves
- If you have a mortgage to pay on the house, you will need to notify the lender that the property is a rental as the mortgage type will need to change. This could mean you pay a higher interest
- You will need to inform HMRC about the income that you will receive, as you may have to pay tax on it.
What do I do if I inherit a house with tenants?
If you’ve inherited a property that currently has tenants living in it, the first thing that you should do is to speak to the tenant(s) and find out what their expectations are. It may be outlined in the will what happens to the current tenants – deceased landlords will sometimes leave in their will that they want the tenant to stay in the property, or that there is a rental agreement in place for a certain length of time that needs to be honoured. If this isn’t the case, you will have to come to an agreement between yourselves. You can then outline from there whether the tenants are going to leave the property or if they are staying, and under what agreements they are going to stay.
Do I have legal responsibilities as a landlord?
If you inherit the property and the tenant stays in the property, making you their landlord, you will have to abide by certain laws. These include
- The Disability Discrimination Order, 2006
- The Sex Discrimination Order, 1976
- The Race Relations Order, 1997.
If you have no previous experience as a landlord, it’s worth getting some legal advice on these orders so you can confirm that you are being fully compliant and not leaving yourself liable for the tenant to take any legal action against you. You will also have responsibilities as a landlord, such as –
- Taking care of any repairs to the exterior/structure of the property
- Taking care of any repairs to the interior of the property, which includes water, gas, and heating
- Ensuring the property and any included furnishings and fixtures are fire safety tested
- Making sure that the property is fit for habitation, dealing with any potential damp, animal infestations, or other issues that would mean the property is not fit to live in.
As a landlord, you are entitled to view and inspect the property as well as entering it to carry out any repairs that are needed, but you will legally need to give a minimum 24 hours’ notice before entering the property. If you don’t provide this, the tenant is within their right to refuse you entry.
I want to sell the house, what do I do?
If you don’t want to keep the property, especially with a tenant living in it, you can do this. You’re able to list a property for sale with a tenant living in it and advertise it as tenanted. This can sometimes mean that the property takes longer to sell, as it does narrow down the audience that you can attract, however, investors and landlords looking to expand their portfolio are attracted to these types of properties with someone already living in the house, they don’t need to find their own tenants.
Can I move into the house myself?
For anyone who inherits a property and doesn’t already own a house, moving in can be the perfect option, especially if you were keen to get onto the property ladder and were previously renting a property. If the tenants are happy to leave, or the property is empty, you should be able to move into the house yourself with no issue, and if there is a mortgage you can apply to have the payments switched into your name if you can afford to pay this each month. If, however, the mortgage is higher than you can afford, you may face a problem. Another problem can arise if you’ve inherited the property with a sibling, and you’re struggling to agree on a final decision.
Can a sibling force the sale of an inherited property?
Often when a house is left to more than one person, it can be hard to come to an agreement of what to do with it. Emotions are usually running high if a loved one has been lost, and it can be an incredibly vulnerable time for some, making it difficult to come to a decision on what to do. If you’re in this situation and one of you is keen to sell but the other is not, you may wonder if the sale can be pushed through.
No-one can force the sale of a house. Everyone whose name is on the title deeds needs to give permission for the sale to go through.
Generally, siblings will agree to sell the house and split the money, but if one of the inheritors isn’t happy to do this, they can prevent the sale. If this is something that you’re experiencing, there are a few options for you –
- The sibling who doesn’t want to sell can offer to buy those who do want to sell out. This can be hard depending on the value of the property, but is a common solution to the problem
- You may agree to rent the property out between you, and split the income.
You will need to come to an agreement with your sibling(s) of what to do with the property between you, and decide what will have the best outcome for you all. If your sibling refuses to sell but cannot afford to buy your share, you will need to come to another agreement between yourselves, whether that be paying you a certain amount each month until your share is covered, or for you to have full claim to something else left in the will to you both that would cover the value of your share of the property.
What else do we need to know about joint ownership?
There are two types of joint ownership, and the one that applies to you is likely defined in the will that left the property to you –
- Joint tenants, which will mean that everyone involved has equal rights to the property. If there are several siblings who are involved, if any of them are to pass away their share will be shared equally among the remaining siblings. This will mean that the surviving sibling will own the house entirely
- Tenants in common, which means that while each of the siblings have a share of the property, it isn’t necessarily an equal percentage for each sibling. This can make it easier to buy other siblings out of ownership if they have smaller percentages, to then be able to either own the property outright or sell it on down the line
Can I refuse an inherited property?
While inheriting a house is often seen as a blessing in a difficult time, it isn’t always a good thing. Some inheritors find themselves in a position where they just don’t want the stress or responsibility of the house. The most common reasons that inheritors refuse their inheritance are –
- The house needs major repair before it could be made habitable and the inheritor doesn’t have the funding, interest, or time to complete these
- The taxes that would be involved are too high – this is especially relevant if the inheritor is looking to rent the property out as a landlord as they would need to pay income tax on the rent that they earn through the property
- The property still has a mortgage to pay which is too high for the inheritor to pay and would leave them struggling with debt
- For whatever reason, sometimes you just don’t want to deal with the house. This can be the case if it’s inherited from a family member you no longer want to associate with, or if it’s going to be too much trouble for you and you’re not interested in it
You should be aware that if you want to refuse a house in your inheritance, you will have to refuse the entire inheritance, you cannot just refuse one part of it. This can cause issues for some people who do want to inherit certain assets from their recently deceased family member, but not their house. If you are not the only inheritor, you may be able to come to an agreement with the other members involved, but in general, you have to refuse your entire inheritance, not just one asset from it.
I want to keep the house; how do I transfer ownership?
Probate is a process that makes sure that a will is a valid, legal document. It also confirms that the executor of the will, who represents the deceased, is processing the will in the way that it has been requested. An executor will need to get a grant of probate that gives them the legal authority to carry out the wishes in the will.
After this, you will need to complete an inheritance tax form. This form will vary depending on how you are related to the deceased, and the value of the property that you have inherited.
If the property value is below £325,000, and the property has been left to a spouse or civil partner, you will need the form IHT205. If you are a child/grandchild of the deceased, this amount goes up to £425,000.
If the property value is above this or left to someone else that is another relation to the deceased, the form will be IHT400.
The next step is to send your application to the Probate Registry. You will need other information and documents within this, including the deceased’s death certificate. At this point, you will also need to swear on oath that all of the information that you’ve provided is true.
You can then start the official transferral process, by filling in the AP1 form. This is an application to formally register yourself as the homeowner, changing the ownership on the register. Once this has been done, you will fill in the TR1 form, that transfers the property into your name. Next is the ID1, which will allow you to prove your identity when you register your application with Land Registry. You will also need the signature of a licensed solicitor or conveyancer. You can then send this to Land Registry, and homeownership will be transferred in 5-6 weeks.
How long does the probate process take?
When applying for probate, depending on how quickly you’re able to get the relevant documents together and complete the application, it usually takes 4-6 weeks. If there are any inheritance tax payments needed to be made on the property, or if the form has any errors or missing information, this can be delayed. To reduce the risk of mistakes delaying this process, you can choose to have a solicitor to deal with the paperwork. This will generally speed things up, but there is no promise, and you will need to pay for the solicitors’ time.
Is there anything I need to consider when transferring ownership?
When you transfer ownership, you will need to keep in mind a few things.
1. Any effect on the mortgage if the property has one
When inheriting a property with a mortgage, you will need to qualify to take on the monthly mortgage payments. If you have bad credit, or a low wage, you may not be an ideal candidate for a mortgage, which will mean your application is at high risk of being declined. You will want to make sure that you can afford the payments and are in a position where you will be approved when considering taking an inherited property on, as if the mortgage is going to be too high you may need to consider other options.
2. Tax implications
If you already own a house, you will need to look at how your tax brackets will be affected if you take on a second property. You may be liable to pay income tax if you choose to rent out one of your properties and make a profit from it, and you will need to declare this to HMRC.
Am I still considered a first-time buyer if I inherit?
Now more than ever, getting onto the property ladder is incredibly difficult, and often the only way for some to be able to do so is by inheriting a property from a deceased family member. While you have not bought the house that you’ve inherited, once it is transferred into your name you are considered a homeowner, meaning that if you were to buy afterwards you would no longer be considered a first-time buyer.
Some inheritors are happy to take on the property that they’ve inherited and own it, however, this is not always the case. If you have inherited an old-fashioned, outdated property, or a property that isn’t suitable for you to live in, especially if it’s fairly small and you have a family, you may choose to sell. With this, it allows you to use the proceeds from the sale for another purpose.
Can I buy a house with inheritance money?
If you sell the property that you’ve inherited, or you inherit money rather than property, you’re able to use the proceeds however you wish. As saving up the amount needed for a deposit on a property is increasingly more difficult, often those who have inherited will choose to take this money and use it as their deposit to be able to buy a house.
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The amount that you need for your deposit will vary dramatically based on the size of the property that you’re looking to buy and where the property is based. It will also depend on the mortgage that you’re looking to get – your deposit can range from 5-20% of the property value. If you have inherited a large amount of money or having sold an inherited house you’ve got the full proceeds to use, you may decide to buy the property outright instead.
Do I have to pay inheritance tax?
If the value of the deceased’s entire estate is less than £325,000, you will not need to pay inheritance tax. If the full estate was left to a spouse, civil partner or a charity, there will also be no inheritance tax paid, no matter the estate’s value. In other cases, where the estate has been split between various people and the value of the entire estate is more than £325,000, inheritance tax is 40% of the estate over that value. Generally, this tax will be paid out of the estate before it is given to you, so you shouldn’t have to do anything, but if this hasn’t been done you will have 6 months to take care of this tax before you are charged any form of interest.
What about gifts?
Sometimes, relatives will gift items before their death when they know that they will be leaving it as an inheritance but don’t want to wait until death to do so. If you have been gifted something, you might be liable to pay inheritance tax. If the value of what the deceased has gifted, whether it be one item to you or several items to various family members, is more than £325,000, tax may be applied. There is a 7-year rule in place, which we have outlined below;
Years between the gifts given and the deceased’s death
Percentage of tax that will be applied
This allows you to see if you may need to pay any inheritance tax, and what percentage that you might owe.
What about capital gains tax?
If you inherit something, such as a property, and decide to sell it on, you may need to pay capital gains tax. This tax is incurred when you make a profit from selling, and you can calculate the amount that you need to pay with our capital gains tax calculator. There are a few exceptions that will mean that you don’t need to pay capital gains tax –
- If you live abroad and you’re selling a property in the UK
- You are selling a lease for a property
- The property is a compulsory purchase property
Will I owe income tax on the property?
If you keep the house that you’ve inherited and choose to rent it out, you may have to pay income tax on the rental income that you will get from doing this. Income tax will apply to any profit over £11,500 that you earn from rental income, however, this is based on your turnover rather than just gross profit. You can subtract your annual personal allowance and fill in a self-assessment tax return form to confirm if you need to pay any income tax.
You will need to make sure that you look into what tax you may need to pay on your inherited property so you’re fully aware from the start of any payment that may be due and you don’t get a nasty surprise at the end of the tax year.
What are my options if I’ve inherited a house in debt?
If you’ve inherited a house that has debt attached, it can be incredibly daunting, and you might not know where to start. One of the biggest worries if you’re in this situation is if the house is in negative equity, which means that the debt attached to the property is more than the value of the property itself. This can happen when property value drops, and can affect houses that have a large loan secured to the house, or a vast percentage of the mortgage still outstanding. If you’ve inherited a house that’s in negative equity, you can opt to refuse the inheritance so that the debt doesn’t become your responsibility.
It’s important to know that by doing this, you will refuse everything that has been left to you in your inheritance, not just the property, as you cannot pick and choose what you do and do not inherit.
It’s worth looking into seeing if the deceased had any kind of credit insurance that can assist you in paying off the debt so you can still take the house without having to worry about the debt being your responsibility. If you’re in a position to, you can use your own funds to pay off the debt and keep the house, but this isn’t a very common outcome, so inheritors in this situation will often try to find other ways to deal with the debt. You may be able to transfer the debt to your name and arrange a payment plan with the lender, but you will need to talk to them abBack to all articles
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