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What you need to know

 

Inheriting a house in the UK is a situation many may find due to the nation’s strong culture of property passing through generations. Predictions indicate that the total value of inheritances is expected to see a substantial increase, potentially doubling over the next two decades. [1] This trend suggests that inheritance is becoming an increasingly important element of financial planning for many Britons. A significant portion of the population, approximately 43%, views property inheritance as a critical stepping stone towards securing their financial future and realising the dream of homeownership. [2] However, inheriting a property involves more than simply receiving the keys. It involves a complex array of legal, financial, and tax-related considerations, each of which plays a crucial role in the process.

 

The Initial Steps

Upon inheriting a property, the process begins with determining the existence of a will. If there is one, the named executor is responsible for applying for probate, a legal process that validates the will and grants the executor authority to deal with the deceased’s estate. This includes paying off any debts and distributing the remaining assets. In the absence of a Will, the process is known as dying intestate, and the next of kin applies for a grant of administration, leading to the estate being distributed according to statutory rules.

 

Probate typically takes between 4 and 8 weeks to be granted, but this can vary depending on the complexity of the estate and any issues that may arise.

 

Inheritance Tax Considerations

A crucial aspect of inheriting property is understanding the implications of Inheritance Tax (IHT). Contrary to what some might assume, it is the estate that is liable for any IHT due, not the beneficiaries directly. The executor uses the estate’s assets to pay any IHT owed to HM Revenue & Customs, which must be done within 6 months of the deceased’s passing. The standard IHT rate is 40% on estates valued over the £325,000 threshold, although there are various exemptions and reliefs that can apply, particularly when the estate is left to a spouse, civil partner, or charity.

 

Options for Inherited Properties with Mortgages

Inheriting a property with an outstanding mortgage introduces additional considerations. The inheritor may become responsible for continuing mortgage payments, potentially requiring them to take out a new mortgage. Alternatively, if the deceased had life insurance, the policy might cover the outstanding mortgage. If neither of these options is viable, selling the property to clear the mortgage may be necessary. A Mortgage Adviser can walk you through your options in detail.

 

Joint Inheritance Scenarios

Inheriting property with siblings or other parties involves deciding on joint ownership: either as joint tenants or tenants in common. This decision also affects how the property can be sold or passed on in the future.

 

Tax Implications of Renting or Selling Inherited Property

Deciding to rent an inherited property brings income tax considerations on any rental income received. Selling an inherited property that isn’t your main residence may also result in capital gains tax if the property has increased in value since the deceased’s passing. Your adviser can explain these complications in detail when addressing your unique circumstances.

 

Navigating the Process

Inheriting a house is a complex process, encompassing emotional, legal, tax, and financial considerations. Whether it involves probate, understanding tax liabilities, or making decisions about the future of the property, it’s advisable to seek professional guidance to navigate these complexities effectively. This ensures all obligations are met, and the inherited property is managed in the most suitable way according to the inheritor’s circumstances and wishes.

 

Get in touch for bespoke advice tailored to your individual circumstances.

 

SOURCE DATA:

 

[1] Resolution Foundation – Intergenerational rapport fair? – 2022

Intergenerational rapport fair?

 

[2] Zoopla – HALF of Brits admit they have checked what their parent’s home is worth – 2023

https://mason.zoopla.co.uk/press/releases/half-of-brits-admit-they-have-checked-what-their-parents-home-is-worth-with-over-four-in-ten-admitting-they-are-relying-on-an-in/

 

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

 

HM REVENUE AND CUSTOMS PRACTISE AND THE LAW RELATING TO TAXATION ARE COMPLEX AND SUBJECT TO INDIVIDUAL CIRCUMSTANCES AND CHANGES WHICH CANNOT BE FORESEEN.