Inheriting property is pretty common, with about 36% of the population inheriting it at one point in their lives. About 70% of people who inherit the properties wouldn’t want to live in them.
Inheritance is a gift, but there are times when it can easily end up being a concern for children and beneficiaries who don’t have plans of living there. They have to choose if they are going to put the property up for sale or rent it out. They also have to consider the tax and financial implications that might come up as a result of their choice.
Dealing with shared inheritance
When the property is inherited by multiple beneficiaries, things get more complicated. If the inheritance is being shared between siblings, all of them have to be aligned as to the future of that property. Is one of the siblings going to be allowed to live at the property? Are you going to sell the property? Do you want to get an income from the property by renting it out? It can be hard to make progress when there is one sibling attached or has personal ambitions about the property. What if one of the siblings wants to live on the property but you don’t? What is the best way to deal with this issue? Can a sibling buy another’s share of the property? is it possible to share the rent from the property with your sibling at the proportion of the market rate? All the involved parties have to agree on these plans – so the more parties are involved with it, the more complex the issue becomes.
Probate
This is the procedure of first confirming the will and then transferring the estate to the beneficiaries. Some complications might come up and delay it, e.g. when the will is contested or when there is no will. It normally takes about 6-8 weeks for the grant of probate to come, and another 3-6 months before all the details of the inheritance and estate are finalized. It can take longer if the deceased left a large estate. When the inheritors don’t agree on the issues, it takes more time, and also when there are many different properties and financial accounts to deal with.
Filing paperwork
It seems impressive when you don’t use lawyers as you deal with family, but it is a good idea to keep everything professional. Make sure you write down everything because issues can come up that will complicate everything and make it hard to agree on the issues. Everyone that is involved with this needs to be content with the final agreement and have the agreement in writing. A verbal agreement can look like a good option, but it is hard to scrutinize it.
The property you are inheriting might still have a mortgage. You will have to keep paying for the mortgage unless you decide to sell the property or repay it.
A solicitor can register the inherited property in your name during the probate process if you choose to keep it. If the property is going to be sold, then it can directly go from the estate of the deceased to the new owner, without having to go through the beneficiaries.
Capitals Gains Tax
You can end up in a worse situation after inheriting a property. if that property grows in value when you own it, you have to pay the capital gains tax. There is a relief allowable and any tax owed above that amount is going to depend if you are paying the standard rate or a higher rate of tax.
You need to pay any CGT within 30 days.
Inheritance Tax
There is an inheritance tax that is charged when the estate is appraised at over £325,000. The tax rate is 30%. When the property is sold, the tax can be paid from the proceeds because it is taken from the estate directly. The inheritance tax due needs to be paid within 6 months of the person’s death to the HMRC, otherwise, interest is going to be added and accumulated.
To rent or sell?
Most recent studies have shown more than half of people prefer selling inherited property and using the money to buy properties they like. Most of them are looking to use the inheritance to climb higher up the property ladder.
It can be more painful to sell a property after losing a loved one because it gets sentimental. Even if the property doesn’t fetch the market value, they are ready to sell it because they want to move on. In some cases, people don’t have to sell the house because they want to go through the contents which takes time.
When many beneficiaries are involved or there is joint inheritance, it is easy when their goals are aligned, if they are both committed to selling it. A point of contention when selling is the price to sell the property. Get valuations from online estate agents. After agreeing on the selling price, the process of waiting for a buyer starts and it can take a long time for a buyer, or reduce the asking price. How much are you willing to drop the price after that delay? It is a good idea to discuss the issues in advance because it is going to make everyone confident about the plan.
Renting out the property is another option if you don’t want to put it on the market. The income that comes from rent is going to be split between the beneficiaries. When sharing the income, you have to look at their share of the property. Renting can be a good option when the market property is sluggish and none of the beneficiaries is in a hurry to sell. Keep in mind that you might need maintenance on the property, and if you are not living close to it, you have to pay an agent to manage the property on your behalf. You also need to know that income from the rental property is going to be subjected to tax.
Getting it ready for sale
About a third of people inheriting properties say they intend on refurbishing the property before putting it on the market. These are mostly those who lived on the property for a long time. The home might have been adapted for an elderly person by installing accessibility aids such as handrails, stairlifts, and alarms. Such things can make it harder to sell the property to potential buyers, even though they are good aids for the elderly.
It can be agonizing to clear and renovate a home you or your loved one has lived in, but it is important to sort and clear out the effects so that the house can be ready for the market. It might be too painful to throw out or donate items at this stage. If you aren’t sure about items sentimental to your family members, then make sure you ask them or put them in storage so that you can deal with them later.
When you want to sell the property fast, you need to focus on renovating things that are quickest and cheapest with the highest impact. If you want to make a big impact, remove the old carpet and replace it with modern flooring. Clear out any possessions and repaint with plain colors. When the property is on view, try maximizing the light getting inside and reducing the amount of furniture. Straighten up the back and front gardens, trim the trees or bushes, brush and spray the patio and clean the patio garden furniture, and clean all the windows.
Make sure you get the property value so you can stay confident of your tax liability. If that property is old without an Energy Performance Certificate (EPC) in the last 10 years, it might be time to update it because efficiency standards have recently changed and the property might not satisfy efficiency standards. If you want to sell the property, it needs to have EPC undertaken within the past 10 years.
Structural alterations to your property can drag on and end up being expensive, which can cause more disagreements between the beneficiaries. Research the buyer who would be interested in the property because it is going to help you know how the property needs to look. This is going to help you sell it faster because it becomes easier to get a buyer ready to make a good offer.
How long is it going to take?
It can take a long time to go through the probate process when marketing a property, the quicker you can renovate the property and put it on the market, the less time it takes. There are some outgoings you have to pay on the property such as energy bills and council tax, which can make you want to sell in the shortest time possible. If the property remains empty for more than a month, you have to get vacant property insurance.
If you can afford to, you can keep paying for outgoings on the property such as insurance, taxes, and mortgage payments. This means you are under no pressure to rent or sell the property if you don’t know how to proceed or if there are some disagreements. You need to look at everything and determine whether it is better to sell it in later years or keep it as a rental property. take your time so you can make the right choice.
