When a loved one passes away, quite often properties are left to other members of the family in a will. Many people are completely in the dark as to how to tackle ownership of a new home. Whilst it can be a bittersweet moment for those who, previously, were struggling to buy a home of their own, for many, it is an extremely daunting time, particularly if they didn’t know the property was legally promised to them.
People in this position have plenty of questions that need answering. So, what happens next?
What do I do, there is no will?
If a family member has passed away and they had no spouse and didn’t leave a will, then you can apply to get a grant of representation. Also known as probate, this will give you access to their bank account and assets, so arrangements can be made amongst the family.
How long do I have to make a decision?
When somebody has passed away and you are now the owner of the property, your first action should be to call the mortgage lender. Explaining your situation will undoubtedly fall on a very sympathetic ear and most lenders are happy to give a grace period whilst people mourn and decide the best course of action with the inherited home.
Do not panic about the mortgage payments, taxes and bills. Providers will give you time to get everything in order. Furthermore, inheritance tax does not need to be paid for up to 12 months.
What is inheritance tax?
Individuals who inherit money or property due to the death of somebody must pay inheritance tax. This tax was introduced in the late 1700s and has been reformed over the years. As of today, if the estate you inherit (property and money) is over £325,000, you will have to pay a 40% tax on the amount over the threshold. However, if your inheritance is from a spouse or civil partner, this tax is waived.
What are my options?
Move into the property
A popular long-term option many younger people choose is to move into the home they have inherited. If you have inherited a house, estimate the expenses of running the home – council tax, mortgage payments, bills – and weigh up whether you would be able to live in the house comfortably.
Sell the property
For those who already own their own homes and do not wish to take on another, many sell their inherited properties. Some choose to go through an estate agent whilst many prefer the quick sale secured by a property-buying company.
Do not panic if there is still a mortgage attached to the house. Sometimes, a person’s will could outline that a mortgage is paid off using their savings. If not, money for the sale of the home can be used to pay-off the outstanding mortgage.
If you choose to sell, it is worth remembering that capital gains tax will need to be paid on any increased property value since the date of death.
Let the property
Although slightly more complicated than the other two options, you can use the inherited property to generate income. If there is an outstanding mortgage on the property you can secure a buy-to-let mortgage with a lender. If the property is mortgage-free, then it is time to research the rules and regulations associated with becoming a landlord.
You should bear in mind that any form of income you receive from an inherited property will need to be declared for tax purposes.
What insurance do I need for an inherited home?
What you do with your inherited house will determine the type of insurance you require.
If the property is going to remain empty for a month or longer whilst you make plans, you will need unoccupied home insurance. Policies usually require homes to be checked every seven days and external areas to be kept neat and tidy.
If you plan on letting the property and becoming a landlord, you will require landlord insurance.
If the inherited house will be your second property, you will need second home insurance. If the inherited property is your only property you can secure standard home insurance.
Should you require any professional advice on dealing with probate, Laurelo can help. You can learn more about the services they offer here.