Discovering that you’ve inherited a property can be a bittersweet experience, bringing both emotions and responsibilities. Whether it’s a family home or a residence far from your current location, the process ahead involves making significant decisions. In this blog, we’ll guide you through the essential steps and considerations to take if you find yourself in this situation.

Understanding Probate:

One of the initial steps after inheriting a property is dealing with probate. If the deceased had a will, it would have named executors, who would be either solicitors, relatives, or friends. This legal process allows executors to settle debts and manage the deceased’s affairs before distributing assets to beneficiaries. During this time, there is very little you can do with the property, and you won’t be able to make any immediate decisions until probate is complete, a procedure that can span up to a year, as until probate is complete, the property technically isn’t yours.

Managing Mortgage Matters:

Contacting the lender is crucial if the inherited property has an outstanding mortgage. Most lenders offer a grace period, relieving you from immediate mortgage repayments until the estate is sorted out. Additionally, explore whether the deceased had life insurance that could be utilised to clear the mortgage. If a life insurance policy doesn’t cover the mortgage, check the mortgage terms for any details about what happens in the event of the death of the mortgage holder and see what the lender expects from you. Communication with the lender is key, especially if you plan to assume the mortgage in your name, as this could bring about further affordability tests, especially if you already have a mortgage in your name.

Grant of Representation:

Obtaining a ‘grant of representation’ becomes essential in the absence of a will; this is also known as probate. This document allows access to the deceased’s bank account for funeral expenses, debts, and asset distribution among beneficiaries. Ensure that you comply with the necessary legal steps to proceed smoothly.

Tax Implications:

Inheriting a property comes with various tax considerations, such as: 

Inheritance tax – if the total value of the deceased’s estate equals more than £325,000, inheritance tax will be due.

Capital gains tax – if you sell the property, you may have to pay capital gains tax.

Income tax – if you have inherited a buy-to-let or holiday lease, you will have to pay income tax when you start receiving income from rent.

While stamp duty does not apply to inherited properties, it’s essential to know and understand the tax implications associated with your situation.

The Process:

The typical sequence involves completing probate, transferring ownership, and finalising Land Registry forms. This process sets the stage for the crucial decision-making regarding the inherited property—whether to keep, sell, or rent it. 

If you decide to sell the property, you’ll have to clear it of its contents, have it valued and list the property on the market.

If you rent out an inherited property, you’ll be classified as an ‘accidental landlord’. Or, if the property you inherited was originally a buy-to-let property and you want to continue renting it, you’ll need to get a new contract naming you as the new landlord.

Regardless of what you may decide to do, you become a homeowner when you inherit a property. This means you will no longer be classified as a first-time buyer if the inherited property is the first property you have ever owned. Because of this, you will no longer benefit from Help-to-Buy ISAs, and you won’t get first-time buyer relief on stamp duty.

Also, if you keep the inherited property, you’ll have to pay the additional stamp duty rate if you buy another property and don’t sell the inherited property simultaneously.

Decision-Making with Siblings:

Collaboration and consensus become paramount if you’re not the sole inheritor and share the property with siblings. Jointly deciding on the property’s fate and coming to an agreement will help avoid potential conflicts.

Conclusion:

Inheriting a property is a multifaceted process that involves legal, financial, and emotional considerations. By navigating through probate, addressing mortgage matters, understanding tax implications, and making informed decisions, you can streamline the conveyancing process and ensure a smoother transition into your new role as a property inheritor. For more advice on what you should do if you inherit a property, get in touch with the team at Muve.