What to do if you inherit a house

Inheriting a property is a significant event in anyone's life. It usually brings mixed emotions, and these, together with the legal, financial and moral responsibilities, can feel overwhelming.

Don't let it stress you too much, though. We're here to help with our essential guide on what to do if you inherit a house.

So, you’ve inherited a home. Now what?

Far from being a straightforward windfall, inheriting a property brings a litany of legal and financial responsibilities, especially if you've been named the executor and the beneficiary.

When you inherit property, you must wait for a probate period to be completed before it becomes yours. Probate is a settling of the deceased's affairs and is handled by the executors – the people named in the will. If you're named as an executor and a beneficiary, you'll oversee this process and must apply for probate before anything else can happen.

It's essentially a long list of admin, which includes things like registering the death, getting in touch with organisations like the local council to inform them of the death, and having the property valued. It'll also fall to you to calculate the inheritance tax, income tax or capital gains tax due on the property, depending on whether the property is kept, rented out or sold.

If you've been named the beneficiary and not the executor, you must wait for the probate process to be completed – which usually lasts several months.

First steps

• Secure the place

The property is likely to be standing empty for some time, and you might be surprised at how rapidly a building can deteriorate or attract damage when uninhabited. Make sure there are robust locks and alarm systems in place, and a buildings insurance policy in your name (or the name of another beneficiary) is also essential.

• Consider mortgage and bills

If there is an unfulfilled mortgage on the property, first check whether the deceased had any life insurance which could clear the mortgage. If there is no such policy in place, you need advice from a mortgage advisor to determine how best to proceed.

You also need to ensure the mortgage payments are continued while you decide what to do with the property. During the probate period, the lender might freeze the repayments, but each lender is different, so make contacting them a priority. You'll also need to ensure the utilities, council tax and any insurance is paid and make arrangements to transfer them into your name (or that of one of the other executors).

• Clear it out

This is a tough one. House clearance after a death can be extremely challenging, both practically and emotionally. You might find yourself surrounded by decades of personal possessions and clutter, especially if your loved one has died unexpectedly and hasn't had the chance to get their house in order.

There are companies who offer house clearance services for the bereaved – it might be worth looking into this once you’ve taken the things which are important or personal to you.

• Inheritance tax

Inheritance tax may apply to the property you inherit and must be paid within 12 months as part of the probate process. If the property itself – or the inherited estate's combined value – is above the nil-rate band of £325,000, you'll need to pay inheritance tax of 40% on anything above that amount. If the property comes from a parent or grandparents, the threshold is £475,000. Combined value means that things like shares, savings and cars are included in the estate's total value.

You can pay your inheritance tax to HMRC in instalments. The current interest rate for inheritance tax is 3.75%.

Live in it, rent or sell?

If you have one or more siblings or others named in the will as beneficiaries of the estate, you'll need to decide how you will proceed with the handling of the estate. You should all be on the same page, so be prepared to be patient while you discuss the available options together.

Option 1 – Live in it

Ok, this can be tricky if you have siblings – we doubt you’ll all be moving back in together. Plus, the house may be far from your local community, workplace or child’s school, meaning it may not be a convenient option in any case.

If one of the beneficiaries does decide to move in, they'll have to buy the other beneficiaries out by giving them their equivalent share in cash. Stamp duty may be due here, so seek professional advice if you're unsure if it applies to you.

Option 2 – Rent it out

If you’re not comfortable with selling the place so soon – especially if it was a treasured family home – you might wish to rent it out and split the proceeds with siblings.

You’ll have to organise the admin side of this alongside the other beneficiaries. Think council tax, landlord insurance, and repairs and maintenance. To keep it simple, it might be worth discussing one person taking the role in return for a higher share of rental income – although they should check any tax implications first with their accountant. Or, simply let a letting agent handle it and split their fee.

Bear in mind the property is unlikely to be rental market-ready. At the very least, it'll need to be redecorated in a neutral style, the carpets and curtains replaced, and subject to a thorough professional clean. Some older properties might need significant repairs, a new heating system or re-wiring, so factor this into your timescale and budget.

You’ll also need to register for Self-Assessment and pay tax on income received from your share of the rent – usually at 40%.

Option 3 – Sell it

Selling could be a good option if the property isn't likely to increase significantly in value, and you (and any other beneficiaries, if applicable) would prefer a lump sum to a steady income.

Remember, capital gains tax (CGT) is due on the profit made from any sale of a property which isn't your main home. So, if you sell the property for more than its value when you inherited it, CGT will be due on the difference. It's important to notify HMRC which property is your primary home within two years of inheriting, to ensure you're paying the correct amount of CGT.

When selling a property you’ve inherited, it’s smart to take out Home Sellers Insurance, which will ensure you don’t lose the upfront cost of conveyancing should the transaction fall through. With 1 in 4 house sales currently failing before reaching the exchange of contracts stage, it’s a way to safeguard your money at what is likely to be a stressful and costly time.

Rhino are industry leaders in Home Sellers Protection Insurance, so you're in safe hands with us. Contact us today to get a free quote.