If you’ve inherited a house, you might be feeling overwhelmed. There’ll be decisions to make and action to take, often during a period of grief. So how can you work out which is the best path forward?
Remember that, in most cases, you won’t need to make any big decisions right away. This is because an inherited property will have to go through probate, a legal process that gives you authority to deal with the deceased person’s financial assets.
However, even while the probate process is happening, you should check how much inheritance tax, if any, you will owe on the house, as this needs to be paid within six months of the person’s death.
In England and Wales, inheritance tax of 40% is usually paid on the deceased person’s estate, if its value is over £325,000, or £475,000 if you are inheriting from parents or grandparents. You only need to pay tax on the portion of the estate over this threshold. If you’re inheriting the estate from a spouse or civil partner, you won’t need to pay inheritance tax at all.
Once probate is complete – and be aware that the process can take up to a year – you generally have three options:
Option 1: Keep the inherited property and move in
If you’d like to live in the house yourself, you can move into it. This is often the simplest option, but do be aware that if there is a mortgage on the property, you’ll have to put this into your name, and pass affordability and credit checks in order to do so.
Option 2: Keep the inherited property and rent it out
Renting out a house you have inherited will provide you with an additional stream of income. However, think carefully about becoming a landlord.
One key factor is that you will likely have to pay capital gains tax on any profits you make from a property that is not your primary residence. You may also have to pay income tax to HMRC if you have inherited a house and use it to make money from letting it out.
If you have inherited a house already being used as a buy-to-let, you can continue to rent it out, but you must have a new contract drawn up naming you as the landlord. If there is a buy-to-let mortgage on the property, you need to get this transferred into your name, or remortgage the property onto a new deal.
Option 3: Sell the inherited property
Many people who inherit a house choose to sell it. If you want to avoid paying capital gains tax on profits made from the property, you should sell the house as soon as possible, before it has had time to increase in value.
Selling an inherited property is not always straightforward, especially if it is not local to you, or there is a lot of emotion attached. The best thing you can do is to find an experienced estate agent, who can handle the sale on your behalf, using their knowledge of the local property market to make an efficient sale.
If you have inherited a property you want to sell, contact the Carter & May team today.