What To Do When You Inherit A Home
When you inherit a house from your parents or family, there are some things you need to sort out and questions to answer. Is it better to sell the inherited property or keep it? What if the property was left for you jointly with your sibling? Does the property still have a mortgage on it? What legal issues do you have to deal with? Things like inheritance tax, stamp duty, and capital gains tax. Luckily you can sell your house for free.
What Happens After Inheriting A House?
Before moving in or selling on and benefiting from the proceed, there are some legal processes that have to be done first. This is a quick summary of the process.
Find The Will
The first step you have to do when dealing with inherited property is to establish your legal relationship with it. Was there a will left by the deceased? Are you the beneficiary of the will (this means you have the right to get a share of the estate)? Are you an executor? (You are the person to sort out the estate of the deceased). If the deceased didn’t leave a will, the next of kin apply for a ‘grant of administration’ which shows the legal rights to deal with the deceased’ estate. If there isn’t any will, the law is going to determine who inherits what.
Going Through Probate
This is the legal process where executors of the will execute the affairs of the deceased. This will include gathering and evaluating assets – property and money owed by the deceased – and clearing any outstanding bills or taxes before distributing the remaining. This process can be time-consuming and can take up to a year to complete – which means you have time to determine what you are going to do with what you get. It’s important to note that probate can be a complex and expensive process, a support service like My Probate Partner can help you to make it simpler and less stressful. They can also help you to save money on probate fees and other costs.
The Mortgage Status
The property inherited is only going to be yours after the probate process is done. You can’t do much until then. It is important to check if the property had a mortgage and then get in touch with the lender and let them know the current situation. There are lenders who are going to give a grace period where they suspend repayments as the estate is being sorted out. Once you are the legal owner, and the mortgage needs to be paid, you are the one going to do that.
Transfer Of Ownership
When the probate process is done and the will is administered, you are going to get the property ownership. You should go to the Land Registry to register your ownership. This is not a must unless you are dealing with a mortgaged or sold property, but it can be a good proof of ownership and makes things a little easier when dealing with the property in the future. Take advice from your financial advisor and solicitor to make the best use of the inheritance.
What is going to happen if the inheritance comes with a mortgage?
If you are in the UK and you inherit a property that has a mortgage, the responsibility becomes yours and you have to make the repayments. You have to do this even if you are not living in the house. There are cases where the deceased has a life insurance policy, which can help in paying off the mortgage if there is no policy or it isn’t enough to fully cover the mortgage, you will be faced with two options once you have the property in your possession.
Selling the house and then using the funds to pay off the remaining amount in mortgage
Take out a new mortgage on the property using your name.
What about inheriting a share of a house?
If you inherit a property with other parties, then it means each one of you has an equal share in the property, unless otherwise stated. You are the ones going to decide how to divide the property amongst yourself. There are two types of joint ownership in law:
Everyone has equal rights and the property is split equally between the beneficiaries. If one of the beneficiaries dies, the property is going to remain with the others. The last person can then pass the property to a beneficiary they choose.
Tenants In Common
This is where different people own property but they don’t have the same percentage of ownership. The beneficiaries can choose to pass their share to someone else if they want to, which gives them a little more freedom.
There are times when it is easy to just sell the property. When the property is sold, the proceeds can be easily divided between the beneficiaries.
What If You Are Interested In Keeping That Property?
Once ownership has been transferred, and there is a mortgage on the property that you need to put in your name, then you can do it – whether with a new mortgage arrangement or the same lender. You have to pass credit checks and affordability checks either way. If there is no need for a mortgage, you can move into the house and start living inside it right away.
What If You Want To Sell The Property?
It can be a little challenging to sell an inherited property – especially when you need to update it or if it’s a long way from where you live. Remove the contents of the property – you can sell the items or donate them to charity shops. You can hire a professional house clearance if you want the best results.
If the house had elderly owners, then it might be a good idea to work on the décor and carpets so they can be attractive to prospective buyers. This will let you get the best possible price. Talk to the local real estate agents and find out its worth and what you can do to boost the value. Once you put it up for sale, it is just the same thing as selling any other home, although you might have to factor in capital gains tax and inheritance tax.
Is Stamp Duty Paid On An Inherited Property?
Stamp duty land tax is paid after purchasing a property or land in the UK. If you have been given the property through a will, you don’t have to pay for it. You will just have to pay for inheritance tax.
How Much Capital Gains Tax Is Going To Be Charged On An Inherited Property?
Capital gains tax is going to be applied when selling the inherited property if it is not your primary residence. The amount you need to pay is going to depend on the capital or taxable gains from the sale and personal income. HMRC is going to add the profit received by selling the property to your income and see which Income Tax band you are going to be in that year. You will then have to pay capital gains tax on taxable profit using the specific rate used for your tax band. Both your financial adviser and solicitor are going to advise you on what to do.
When Does A Person Pay Inheritance Tax?
You don’t have to directly pay the inheritance tax as the inheritor because it is going to be paid using funds from the deceased’s estate. If you are a beneficiary, you can decide to raise funds or use your savings to pay the inheritance tax so you don’t have to sell equity in the property.
It is complicated when it comes to who needs to pay, which makes it a good idea to talk to a financial adviser.
If an estate is worth less than £325,000, you don’t have to pay any tax. If it is worth more than that, you need to pay tax on what is above that amount.
The tax threshold can go up to £450,000 if the deceased owned their home or share in it, but this applies when the property has been left for children and grandchildren – this includes foster, adopted, ad stepchildren – and the total value of the estate is not more than £2 million.
The standard inheritance tax rate is 40% in the UK and it is payable based on the estate value – which includes investment, properties, and other assets. The inheritance tax should be paid to HMRC by the end of the sixth month after the death of the person. If the person passed away in April, it has to be paid by 30 October the same year.
What If The Inherited Property Is In A Trust?
A trust is a way to hold and manage money or property for those who might not be able to do it themselves. If you have been left with a property and it is in a trust, you are going to be referred to as the beneficiary. The trustee is the legal owner of the property and they are the ones tasked with dealing with the property as set out in the will by the deceased.
What Happens If The Inherited Property Is Abroad?
When the owner of the property passes away, all their foreign assets which include bank accounts, overseas property, and investments. These are going to be added to the estate, which is then liable to the country’s inheritance tax. There are cases where you have to factor in taxes in the country where the property is located in. There are many countries across the world that have double taxation treaties with the UK. This is important because it means you can claim back any double payments you have made.
What Happens To An Inherited Property If There Is A Divorce?
When it comes to divorce in England and Wales, all the assets are pooled together and then they become joint assets. Property or money that you have received as inheritance is not going to be excluded automatically from the assets to be divided. Every case is not the same and there are a lot of factors that are going to be considered during the process, including inheritance, when you got it, how you dealt with it during the marriage, and the financial needs of both parties.