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.
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 currency is with buyers. Alternatively, obtain several valuations from different sources — House Buyer Bureau can provide a cash offer within 24-hours.
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.
What Happens When Siblings Inherit a House?
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.
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) retain 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.
Do 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 to minimise 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 significantly 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.
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 emotional attachment for you — moving on may be difficult in the short term but less emotionally draining in the long term.
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:
- Secure and Insure the Property
- Notify Utilities Companies and the Council
- Value the Property
- Complete the Probate Process
- Pay any Inheritance Tax Due
- Decide if Selling is the Right Choice
- Complete Repairs and Renovations
- Instruct a Solicitor or Conveyancer
- Market the Property
- Host Viewings
- Review Offers
- Accept an Offer
- Complete Surveys and Searches
- Exchange Contracts
- Complete the Sale
- 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.