Inheriting a property puts you in a unique and often difficult position.
You will be grieving and worrying about handling a property.
Extra paperwork, looking after tenants, selling the house, or any number of other things may be weighing on your mind.
Knowing who gets a stake in a property during probate is essential. In a complicated area like this, all your questions must be answered.
Read on to find out more.
What is an inherited house?
An inherited house is a property that someone receives as an inheritance when the owner passes away.
When someone dies and owns assets such as 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 intestacy kick in and determine who receives the property.
Under these laws, only married or civil partners or close relatives can inherit.
So, it’s essential to leave a will if you have a house that you want a specific individual(s) to inherit on your passing.
What tax do I have to pay on an inherited house?
The tax implications when you inherit a house depend on factors such as:
- The value of the house
- Your relationship to the deceased
- Whether the home is your primary residence.
These are some of the critical 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%.
For example, if the house is worth £600,000, the inheritance tax is 40% of £275,000. You won’t be charged 40% of the house’s value but anything above the £325,000 threshold.
If you inherit from your spouse or civil partner, you won’t have to pay this tax even if the house is more than £325,000.
Capital Gains Tax
You can’t pay Capital Gains Tax when you inherit a house.
However, if you choose to sell this house further down the line, you may have to pay this tax if the house’s value 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 know 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.
Who gets a stake in an inherited house?
Typically, the people with a stake in an inherited house depend on the deceased’s will. For example, an inherited property split between siblings will impact the stake that each person gets.
The most common scenario is that the beneficiaries named in the will inherit the property.
The matter is pretty straightforward if the will is valid and specifies who receives the house and each individual’s share or percentage.
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 dies, the ownership interest is given to another individual(s).
The deceased may have placed the house in a trust for more complex estate planning situations. This trust dictates how the property is to be distributed and managed.
When dealing with an inherited house, you must consult a solicitor or lawyer specialising in this 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 clarify who can legally sell an inherited house.
What are my options with an inherited house?
If you inherit a house in the UK, you have multiple options for what to do with it. As the rightful owner, you decide.
You can choose to:
1. Live in it
In this economy, moving in will save you a lot of money and hassle.
However, you’ll be responsible for dealing with maintenance, taxes, 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 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 property.
2. 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.
3. Rent it out
You can set up an income stream to help cover the expenses associated with a house. 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, such as screening tenants, maintaining the property, and handling tenant matters.
4. Leave it empty
You can choose to keep the property empty. However, expenses will continue to be incurred.
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.
Contact We Buy Any Home if you want to sell a probate house that you have inherited quickly.
