Your options when inheriting a property

Inheriting a property is not an everyday conversation topic, so it comes as no surprise that people have been turning to Google to find out what’s involved. Knowledge gaps were revealed in 2021 when Google Search Trends were analysed. The top eight most searched for property phrases included ‘power of attorney’ and ‘probate’, which had seen a 450% and 100% increase in enquiries, respectively.

Whether your Great Aunt Rose has left you a house in her will or your family home is no longer needed, you may inherit a property at some point in your lifetime. Knowing what to do with it will depend on your own circumstances and if anyone else is involved. Here’s our guide if you find yourself with an unexpected property.

Prepare for probate

It’s a common misconception that if a will was made, the distribution of a deceased person’s assets can go ahead without intervention. In many cases – especially if the property owners were ‘tenants in common’ – a process called probate is needed before the wishes of the will are respected. 

Probate is applied for by the next of kin or the will’s executor and once ‘grant of probate’ is granted, any property owned by the deceased can be dealt with. Generally, only those who were a joint property owner with the deceased – known as joint tenants – can bypass probate.

Are you the sole owner?

Before you make any grand property plans, you need to establish if you are the sole heir to the property or whether you now share ownership with other people, such as siblings. If it’s the latter, the property’s future needs to be a joint decision. If you’re the only beneficiary, you can start moving forwards.

Move in yourself

Inheriting a property may give you an instant accommodation upgrade, especially if you are currently living with family or are in rented accommodation. If the property is empty and it suits your circumstances, there is nothing stopping you moving in as the new owner.

Sell up

Sometimes selling an inherited property is the only option, especially if there are debts in the deceased’s estate, a large inheritance tax bill or if there are multiple new owners who can’t agree on the property’s future. 

Selling an inherited property is one way to benefit from any equity. Remember, if the property is still mortgaged and this sum isn’t settled by a life insurance policy, proceeds from the property’s sale may go towards paying off the home loan. There may also be income tax to pay upon completion.

Become a landlord

One way of retaining an inherited property is to rent it out to tenants. As well as keeping ownership of an asset, there are opportunities to earn an income from the monthly rent and the possibility of long-term price appreciation. You’ll also have the option of moving back into the property in the future, as long as tenants are given the correct amount of notice.

It’s worth noting the tax implications of becoming a landlord. As well as paying income tax on any rental income, you’ll have to pay capital gains tax on any profit you make if you sell the property at a later date. 

Inheriting a buy-to-let

If you’re left a property that has been used as a buy-to-let, the tenant status will dictate what happens next. If tenants are still in place, they have the legal right to stay in the property in line with their legal notice period. 

If the buy-to-let is empty, there is nothing stopping you from selling the property. If it’s inhabited, you’ll have to wait for the renters’ tenancy agreement to end or start the eviction process (if there are qualifying circumstances) before selling up. Alternatively, you could take over as the landlord.

Inherited properties & first-time buyers

The picture is slightly more complicated when a first-time buyer inherits a property. For instance, someone saving for a deposit using a LISA (a lifetime ISA) would automatically become a homeowner if they inherited a property. As a result, they would lose their first-time buyer status by default and have to pay a 25% withdrawal charge before accessing the money in their LISA. 

It’s worth noting that other first-time buyer assistance packages may not apply if a purchaser has inherited a property, such as the Government’s Help to Buy scheme and mortgages specifically created for first-time buyers.

The second property trap & stamp duty

Existing property owners who keep hold of an inherited property will be classed as someone with ‘additional properties’. The same rule even applies to first-time buyers who inherit a property but who have yet to purchase their own home and this has stamp duty ramifications.

First-time buyers who retain an inherited property will no longer qualify for the zero stamp duty on the first £300,000 of their initial property purchase. In addition, all additional home purchases incur an extra 3% on top of basic stamp duty rates, and this applies to everyone who owns more than one property. 

If it looks like you may inherit a property in the future and you’d like to take advice now, please get in touch.