If someone dies and you inherit a property, you will need to decide what you want to do with it: sell it, rent it out or live in the property. It is possible that you will need to pay a particular tax on the property. If you have inherited a part of the property, you will need to speak to the other owners in order to make a joint decision as to what happens with the property.
How might you inherit a property?
There are three key ways you may inherit a property:
- if the property was owned outright by the deceased (i.e. no mortgage), or owned jointly by owners who have died – their will will set out who inherits the property
- if the property was held under ‘joint tenancy’ – this means that the property was jointly owned. If one owner dies, the surviving owner will automatically inherit the property
- if the property was owned as a ‘tenancy in common’; in this case, the deceased person’s share is set out in the will
In the case that there is no will, the surviving partner will inherit the whole estate including any property. If there is no surviving partner, the children of the deceased will receive the whole estate. For multiple children, the estate will be divided equally between them.
Do you have to pay tax on inherited properties?
Regardless of how the property was owned, a property will make up part of the deceased person’s “estate”. The deceased person will have a personal representative or executor who is responsible for the estate and any associated financial handlings. It is, therefore, their responsibility to ensure that any debts and taxes are paid before the assets of the estate are distributed.
If you are already a home owner and choose to keep the inherited property as a second home, you will need to decide which of those homes will be your main home and advise the tax office as this will have tax implications. For example, you will only be able to have relief from capital gains tax for your main property.
Do you need to register the property in your own name?
If a property is passed to you, you can register that you are the new owner of the property by contacting the Land Registry. You will only need to do this if the property is sold or mortgaged; however, you can choose to do it anyway in order to get proof of ownership. It can also be a good idea to get it as it can help make things more simple when dealing with the property in the future.
What happens if an inherited property has a mortgage?
If you inherit a property which has an ongoing mortgage, the mortgage payments will become your responsibility, regardless of whether or not you are living there. The property could be repossessed and sold off to pay the mortgage if you are unable to make the payments. If you have inherited a property and cannot meet mortgage payments, you should seek advice from a mortgage advisor or try to contact the lender to discuss options and possibly negotiate terms.
What happens if you inherit a property in trust?
If you are left a property in trust, you are called the ‘beneficiary’ – a trust is a type of managing or holding property for people who may not be able to manage it for themselves, for example if they are too young. The ‘trustee’ is the legal owner of the property – it will be their legal responsibility to deal with the property and adhere to any rules set out by the deceased in their will.
Can you rent out an inherited property?
Yes, you can rent out an inherited property; however, it is important to note that the tax implications will be different. If you rent out the property, you will have to pay tax on any profit made from the rental income. You will also need to check the different legal implications for the safety of the property and its contents.
If you choose to sell the inherited property, you will need to pay tax on the profit made when you sell it.