Inheriting a property puts you in a unique, and often difficult, position. Not only are you dealing with the loss of someone very close to you, but may also be worrying about the stress involved with owning a property. Extra paperwork, looking after tenants, selling the house or any other number of things may be weighing on your mind.
It is important to know who gets a stake in a property during probate. In a complicated area like this, it is important that all your questions are answered. Read on to find out more.
So, what exactly is an inherited house? Well, it’s a house that someone receives as an inheritance when the owner passes away. When someone dies and they own assets such as a property, these are distributed to their heirs or beneficiaries as set out in their will.
If they don’t have a will, the laws of intestate kick in, and determine who receives the property. Under these laws, only married or civil partners or close relatives can inherit. So, it’s important to leave a will if you have a house that you want a specific individual(s) to inherit on your passing.
The tax implications when you inherit a house depend on factors such as: the value of the house, your relationship to the deceased, and whether the house is your primary residence.
These are some of the key taxes you’ll face when inheriting a house:
- Inheritance Tax
In the UK, there is typically no Inheritance Tax to pay if the property is worth less than £325,000. If the house is worth more than this, the inheritance tax rate is 40%.
So, for example, if the house is worth £600,000, the inheritance Tax is charged at 40% of £275,000. You won’t be charged 40% of the house’s value, but rather anything above the £325,000 threshold.
You won’t have to pay this tax even if the house is more than £325,000 if you inherit from your spouse or civil partner.
- Capital Gains Tax
When you inherit a house, you aren’t liable to pay Capital Gains Tax. However, if you choose to sell this house further down the line, you may have to pay this tax if the value of the house has increased. There is an exemption if this house is your main residence.
- Income Tax
If you choose to rent out this house, you’ll have to pay income Tax on this rental income.
- Stamp Duty Land Tax
You won’t need to pay this tax if you inherit a property but you should be aware that you’re disqualified from being a first-time buyer. As a first-time buyer, you currently pay no stamp duty on properties worth £425,000 or less.
Typically, the people who have a stake in an inherited house depend on the deceased individual’s will. For example, with an inherited property split between siblings, this will impact the stake that each person gets.
The most common scenario is that the beneficiaries named in the will inherit the property. If the will is valid and clearly specifies who receives the house, and the share or percentage each individual gets, the matter is fairly straightforward.
However, if the deceased did not leave behind a will, the property may be determined by the laws of intestate succession. Typically, the only individuals who will inherit in this situation are children, spouses, parents, and siblings.
A life estate may be set out in the will which means that one individual (life tenant) is given the right to live in or use the property during their lifetime. In this situation, when the life tenant passes away, the ownership interest is given to another individual(s).
For more complex estate planning situations, the deceased may have placed the house in a trust. This trust dictates how the property is to be distributed and managed.
When dealing with an inherited house, it’s important that you consult with a solicitor or lawyer specialising in this specific area. If an inherited property isn’t distributed or dealt with properly, it can lead to complex legal disputes and complications. Speaking to an expert will also provide clarity on who is legally allowed to sell an inherited house.
If you inherit a house in the UK, you have multiple options for what to do with the property. And as the rightful owner, it’s down to you.
You can choose to:
- Live in it:
In this economy, you’ll save yourself a lot of money and hassle by moving in. However, you’ll be responsible for dealing with maintenance, tax, and insurance which can be overwhelming or not financially viable.
It’s worth noting that if you’ve never purchased a property and inherited a house, you’re no longer classed as a first-time buyer for the purposes of Stamp Duty. For first-time buyers, you don’t have to pay stamp duty on properties up to £425,000.
By choosing to live in the property, you avoid having to pay stamp duty if you were to buy your own property.
- Sell it:
This option has the obvious benefit of providing you with a lump sum of cash to use however you like. But if the house price has risen notably, there may be some Capital Gains Tax implications. So, it might make more financial sense not to sell it.
- Rent it out:
You can set up an income stream for yourself which will help with covering the expenses a house brings with it. Plus, the house may increase in value over time, making it a good investment.
However, renting out a property comes with its own set of responsibilities like screening tenants, maintaining the property, and handling tenant matters.
- Leave it empty:
You can choose to keep the property empty, however, it will continue to incur expenses. There is the benefit of having it as a future investment and you won’t need to deal with the responsibilities of renting it out right now. However, if it isn’t maintained regularly the property may deteriorate.
Please contact We Buy Any Home if you want to quickly sell a probate house that you have inherited.