You have just inherited a property (according to research 36% of us are likely to do so) and it is likely to be an emotional time particularly if it was a much-loved family home or you have inherited as a result of a close relative’s death.
Certain questions will immediately spring to mind – should you sell it, keep it, move in or rent it, what taxes will you owe and what happens to the mortgage etc?
If you are the executor or beneficiary, you will have to wait until probate is complete, which means you actually don’t have to make an immediate decision as this can sometimes take several months, this will give you some time to decide what to do – Probate is when the executors of the will sort out the deceased’s affairs and settle any outstanding debts before assets are handed over to the beneficiaries – there is very little can be done to the property at this time but it is a good idea to create a short-term plan to maintain the home while the estate settles. You’ll also need to provide for upkeep and start thinking through your long-term goals and discuss any ideas with siblings or any other heirs who may have a stake in the property. During probate the executors of the will are required to transfer ownership of the property into the beneficiaries name via the land registry – these forms are available on the government website.
Lenders are usually sympathetic, so it is a good thing to inform the mortgage company as soon as you can – most mortgages have a grace period which means repayments can be suspended until the estate is sorted. If the person died without a will, then you will need to apply a ‘grant of representation’ to access their bank account – if the deceased person has a life insurance this can be used to clear the mortgage, if there was no life insurance, the lender can let you know what is expected.
Once the executors of the will have settled debts and taxes and the mortgage is in your name the property is yours.
Taxes that are due could be inheritance tax if the combined value of the deceased’s estate comes to more than £325,000 (anything above this then 40% will be due to pay to the tax man) and if you sell the property then you would have to pay capital gains tax.
Inheritance tax is due within 12 months of death and should be settled by the executors of the estate, it is possible that this can be paid in annual installments which should hopefully avoid a situation where the property has to be sold in order to settle the inheritance tax bill.
Capital Gains tax is only due on a property if you decide to sell it – capital gains tax is also due on any profit – this is levied at 18% on gains form residential property if you are a basic-rate income tax payer, if you are a higher or additional rate taxpayer the rate rises to 28%. Everyone gets a capital tax allowance of £12,000.
Income tax is due of you start earning income from the property however stamp duty is not levied on inherited properties.
If you decide to sell the property, clear the contents, keep the items you want to keep, sell or donate others and if the contents are worth money sell via an auctioneer – we recommend Hartleys Auctioneers in Otley.
Does the property require some modernisation? it may be helpful to strip out carpets and paint the walls in order to make it look more appealing, at David Phillip Estate Agents we can recommend what is the best course of action in terms of updating. Once the property is on the market then it is generally the same as selling any other home.
If this is the first property you have owned, once inherited it means you are no longer a first time buyer which means you may forfeit some of the Government initiatives which includes first time buyers relief on stamp duty.
If you have inherited a property that is currently being rented out, then you may become and ‘accidental landlord’.
The third and easiest option is to move into the property, you will need to put the property in your name on the mortgage if there is one – at this point you will have to pass the usual affordability and credit checks.
Hopefully this answers some of the initial questions you may have but it is always better to contact your solicitor and if you require a valuation for probate call David Phillip FRICS on 01134 676 400.
David Phillip Estate Agents, 86, Leeds Road, Bramhope, Leeds LS16 9AN, covering Bramhope, Pool-in-Wharfedale, Adel and Cookridge
W: davidphillip.co.uk e: info@davidphillip.co.uk