Inheriting a House from Your Parents? What to Do

No matter when or how it happens, losing your parents is an emotional and challenging time. It can be hard keeping on top of your day-to-day commitments while you’re grieving, let alone managing the complex and time-consuming probate process.

Inheriting a house from your parents brings with it a long “to-do” list and probably lots of questions — What do I need to do when I inherit a house? Do I have to pay inheritance tax? What is probate? Is it better to sell or rent an inherited house?

This guide will answer some of the most frequently asked questions about inheriting a house from your parents.

If you’re ready to find out how much your inherited property is worth, contact us for a free, no-obligation valuation.

What Do I Need to Do When I Inherit a House?

The first things to do when you inherit a house are:

Secure the Property

An empty house is more likely to attract criminal activity or succumb to maintenance issues that, left untended, can cause extensive damage. Lock all doors and windows, turn on the burglar alarm if there is one and turn off water, gas and electricity supplies at the mains. Store anything of monetary or sentimental value elsewhere, and if the property is likely to sit empty for some time, consider installing a simple CCTV system.

Inform the Council and Utilities Companies

Avoid running up expensive bills by cancelling any utility accounts and letting the council know that the property is not currently inhabited. If the property is vacant for any length of time, the council may reduce the council rate.

Take Out Insurance

When a homeowner dies, any insurance policies they hold for the property, such as buildings and content insurance, will probably be terminated within 30 days. Unoccupied home insurance will cover the property until you have completed the probate process and decided what to do with it.

Value the Property

You can value the property yourself by comparing recently sold prices of similar houses locally, reading up on the current housing market and using property heat maps to find out how popular the area is with buyers. Alternatively, obtain several valuations from different sources — contact House Buyer Bureau for a free valuation.

You will need to complete the probate process before selling the property or renting it out.

What Is Probate?

Before you can do anything with an inherited property, you need to establish yourself as the new legal owner.

Probate is the legal process of administering a deceased person’s or persons’ estate (all their assets and money). Unless you jointly owned the property with your parents, you will need to apply for probate to give you the legal right to take possession of it.

The probate process varies depending on whether or not your parents left a will. If they did leave a will and named you as the beneficiary of their home or their entire estate, you will need to apply to the Probate Registry for a “Grant of Probate”. This typically takes six to eight weeks if there are no delays.

If there is no will, the process can be a little more complicated and lengthy. Instead of the Grant of Probate, you will need to apply for “Letters of Administration”. When someone dies “intestate” — without leaving a will — their estate will be divided according to the “rules of intestacy” — the children of deceased parents will be first in line to inherit.

Once probate has been granted, you can do with the property as you wish.

If you decide to sell your inherited house, we can offer a guaranteed sale in a timescale that suits your needs. Find out more about how selling to House Buyer Bureau works.

About If You’re Inheriting The House With Your Siblings?

If you are named a joint beneficiary of your parents’ house along with a sibling or siblings, you will need to agree on what to do with the property. A house is much more difficult to share than cash, and if there is disagreement about what to do with the property, the situation can soon become complex and unpleasant.

How to divide an estate between siblings

Assuming each sibling inherits an equal share of the property, you have the following options to consider:

• Keep the property and live in it together — often not practical nor desirable unless all parties agree to renovate and create two separate residences. Another alternative would be to use the property on a timeshare basis.
• One sibling lives in the property — they either buy the other(s) out, or the non-resident sibling(s) retains a share of the property they will recoup when sold.
• One sibling buys the other(s) out — and keeps the property as a second home or rents it out as an extra source of income.
• The house is sold — and the proceeds split equally between all the siblings.
• The house is rented out — and the proceeds split equally between all the siblings.

If there is an outstanding mortgage balance on the inherited property, many people choose to sell because they cannot afford to take on a second mortgage even if it is shared between siblings.

If the siblings cannot reach an agreement about what to do with the property — perhaps one of them is already resident in the home and refusing to move out, for example — the sibling who wants to sell can ask the executors of the will to force a sale in court under the Trusts of Land and Appointment of Trustees Act 1996. This will not always be successful, and it is likely to damage relationships in the family, so an amicable agreement is much better for all involved, if possible.

I Have to Pay Inheritance Tax on My Parents’ House?

If the value of the deceased’s estate (property, money and possessions) is less than £325,000, there’s usually no inheritance tax to pay. However, when a parent passes on their home to a child or children, the tax-free threshold can increase to £500,000. This includes adopted, foster or stepchildren.

If the estate exceeds the relevant threshold, you will be liable to pay the standard inheritance tax rate of 40% on the amount above this figure. For example, if the value of your inheritance is £650,000, you could be entitled to £500,000 tax-free, and you will only pay inheritance tax on the remaining £150,000, which at the 40% rate would be £60,000. You must pay however much tax is due by the end of the sixth month after the person died.

If your parents passed the property on to you before they died, there would be no inheritance tax to pay, provided they either paid you the cost of rent and bills for seven years or moved out and lived elsewhere for seven years after they did so.

How Do I Avoid Capital Gains Tax on Inherited Property in the UK?

Capital gains tax (CGT)is only payable when a property is sold, not inherited. So if you choose to keep the property, there will be no CGT to pay.

CGT is not payable on your primary home. But, if you own your home and choose to sell your parent’s house, CGT will be due on the amount the property has increased in value since you inherited it, minus your capital gains tax-free allowance of £12,300 (£6,150 for trusts). So, for example, if the property is valued at £250,000 when you inherit it and you sell it five years later for £325,000, you will pay CGT on £62,700 (sale price minus the value at the time of inheritance and your tax-free allowance). The rate of CGT for residential property is 28%.

The best way to avoid paying capital gains tax or minimising the amount is to sell the property as soon as the probate process is completed. You cannot legally sell a property during probate, but you can put it on the market, advertise it, conduct viewings and agree on a sale price with a buyer. Selling the property immediately after you have obtained the legal right to do so means that the property’s value is unlikely to have increased from when you inherited it — the “probate value” — to when you sell it. As CGT is only payable on the uplift in value, there should be no CGT, or very little, to pay.

If you want to sell your house fast a to minimise the amount of capital gains tax you have to pay, we can help. Take two minutes to fill out our short online form, and we’ll be in touch within 24-hours to discuss your free, no-obligation cash offer.

Is It Better to Sell or Rent an Inherited Property?

This can be a difficult decision. Do you sell up and bank the cash? Or hang on to the property to benefit from any future increase in value and an ongoing second income?

The latter may seem appealing, but managing a rental property can be stressful and time-consuming. You’ll also need to ensure that you have the finances to maintain the property and pay the mortgage (if there is one) during periods when the house is empty. If you inherited the house with siblings, sharing the responsibility of a rental property can be challenging, whereas selling allows you to split the proceeds and make a clean break. This may be particularly beneficial when inheriting your parent’s home, which is likely to have some emotionalattachment for you — moving on may be difficult in the short term but less emotionally draining in the long term.

Read more about the pros and cons of renting and selling an inherited property.

Selling an Inherited Property: A Checklist

We’ve bombarded you with a lot of information in this blog; your head may be spinning with all the different options and things to do. Here’s a quick summary checklist to help guide you through the process of what to do when you inherit a property and how to sell it:

1. Secure and Insure the Property
2. Notify Utilities Companies and the Council
3. Value the Property
4. Complete the Probate Process
5. Pay any Inheritance Tax Due
6. Decide if Selling Is the Right Choice
7. Complete Repairs and Renovations
8. Instruct a Solicitor or Conveyancer
9. Market the Property
10. Host Viewings
11. Review Offers
12. Accept an Offer
13. Complete Surveys and Searches
14. Exchange Contracts
15. Complete the Sale
16. Pay Capital Gains Tax if Applicable.

As you can see, there are several more steps involved in selling a probate property than selling your home. The probate process can take months, especially if there are complications such as an invalid will or difficulties finding an executor. If, after all this, you’re keen to sell the house fast to avoid further hassle, stress and potentially, capital gains tax, House Buyer Bureau can help.

We are a genuine cash house buyer with the funds to buy your inherited property in as little as 7 days. There are no estate agents or legal fees to pay, and you can skip marketing and viewings altogether.

Find out more about how it works, or contact us for your free cash offer today.

FAQs

Can I rent out inherited property?

Yes, you can rent out a property you inherit, however, HMRC treats this as income and you will need to pay tax on any profits made from renting out the property.

Can I rent out an inherited house before probate?

No. Decisions about an inherited house cannot be actioned until the executors have received Grant of Probate; this includes renting out the house.

Do I have to pay Capital Gains Tax on a property I inherited?

You only have to pay Capital Gains Tax if you sell the property you inherited, and Capital Gains Tax is paid on the increase in value between when you inherited it and when you sold it. If you sell the property at a loss or at the same value as when you inherited it, there is no Capital Gains Tax to pay.

How much can you inherit before you have to pay taxes on it in the UK?

Inheritance tax applies to the estate of a deceased person, not to individual beneficiaries. There is typically no inheritance tax to pay if the estate is below the £325,000 threshold or, if the estate is worth more than this, everything above the threshold is left to a spouse, civil partner, charity or community amateur sports club.

If a deceased person bequeaths their home to their children (including step, foster and adopted) or grandchildren, the threshold can become £500,000.

What is the 7 year rule in inheritance tax?

This rule refers to how long a person lives after giving a gift (such as property) that requires inheritance tax be paid on it; if they live for 7 years after giving the gift, there is no tax to be paid on it.

Gifts, including property, given in the 3 years before death are taxed at 40%. Gifts given more than 3 years before death, and with a total value of over £325,000, are subject to taper relief ,Whereby the rate of tax decreases the further apart the gift and death were. If there are 7 or more years between gift and death, there is 0% tax to pay.

How long do you have to keep a property to avoid Capital Gains Tax?

Capital Gains Tax refers to the tax charged on gains made when selling property that isn’t your main residence. You can avoid paying Capital Gains Tax by either selling the property at the same value (or less) than you inherited it at, or by temporarily making it your primary residence. The latter would involve living there for at least a year and having bank statements and utilities in your name at this new address, and updating your address on the electoral register to this new address.

How can I sell an inherited house quickly?

If you are looking to make a quick sale on an inherited property and just want to start moving on with your life after the passing of a loved one, without the stress of arranging viewings and the time delays that come with the open market, speak to us. We specialise in fast and easy house sales and full visibility throughout the process.