Inheriting a property can be a lot to take on. You have likely only received it as a loved one has passed away, and now you have a huge asset to deal with. It’s no wonder that you may have many questions running through your brain.
One of those may be: what is the holding period for inherited property? Here we’ll look at how quickly you can sell a property, what barriers there are, and what tax you may need to pay. Let’s get started.
What is an Inherited Property?
An inherited property is one that you receive from someone who has passed away. This will have either been automatically left to you due to being the closest living relative or passed to you via a will.
Once you have inherited the property, you will be the new owner. You will then have lots of options for the inherited property, and you can choose to do whatever you want with the home. However, there are a few things that you need to be aware of.
What is the Holding Period for Inherited Property?
The holding period refers to how long you own a property before it is sold. There are no laws to indicate how long you can take or how quickly you need to sell an inherited property. The only factor that affects it is probate.
Probate is the legal process that you need to go through to administer an estate. For simple cases, probate may only take a few months. In this time, you wouldn’t be able to sell the property. You may also need to pay inheritance tax if the estate (including the property) is valued at over £325,000.
The probate process can be avoided if the property is in joint names. For example, the surviving spouse wants to sell the home and downsize. In this case, the property would automatically pass to them, and probate wouldn’t be required. Here the property could be sold immediately.
However, if probate is required, then this would need to be completed before being able to sell or transfer any assets.
Tips For Selling an Inherited Property
If you want to sell an inherited property, then there is a lot to consider. This can be especially difficult if you have never sold a property before. Here are some tips to help you sell your inherited property successfully.
Get a Valuation
You will need to get a valuation of the property. This will firstly be required to calculate if inheritance tax needs to be paid, and secondly, it will be required for the probate application.
Clear Out the Property
Decide what personal effects should be kept and which can be given away or donated. After you’ve cleared out the home, it’s a good idea to give it a deep clean, or have a professional company do it for you.
Decide Whether to Repair or Redecorate
You then need to decide whether you want to try to increase the value of the property. This can be a good idea if the property was owned by an elderly person and is particularly outdated.
Some don’t want to do this as they want to sell the home as quickly as possible. Others want to avoid it as they find it mentally draining. While awaiting the probate process, it makes sense to make it as presentable as possible.
Consider a Second Valuation
If you have redecorated, or significant time has passed since the first valuation, you may wish to get another one. This will give you a more accurate idea of what it should be sold for.
Find an Estate Agent
A good estate agent will be responsible for putting the property on the market and finding a buyer. They can also help with staging the property and arranging viewings.
How Much Capital Gains Tax Will I Need to Pay?
When inheriting a property, you don’t need to just worry about inheritance tax but also capital gains tax. Capital gains tax is required on the profit from any sale of a high-value asset. The rate is 28% for those who earn over £50,270, and 18% for those who earn below that figure.
This only applies when you sell a property that is not your home. If you decide to move into the property that you have inherited, then you can elect that as your main home. You’d then pay capital gains tax if you then sold the home you were previously living in.
The profit in terms of capital gains is usually calculated as the difference in the amount you paid for a property and the amount you sold it for. Crucially, with inherited property, it’s calculated from the value of the home at the time of probate.
For example, if the home is worth £250,000 at probate and you sold it for £250,000 three months later, no capital gains tax would be payable. You also have a capital gains tax-free allowance of £6,000.
If you sold the same property for £300,000, then that would be a £50,000 profit. Let’s say you were in the lower tax bracket. Here you would pay 18% tax on £44,000 (the profit minus the allowance) and therefore, you would be liable for £7,920. However, you’d also be able to deduct your legal fees from this.
