PROPERTIES TO RENOVATE: INHERITED PROPERTIES
When looking at investment opportunities, inheritance is one that crops up for most people at one point or another. Whilst you can move into your inherited property or sell it, you could also rent it out for a profit.
But what tax do you have to pay when you inherit a property? What are the different ways you can inherit property? And how can we help?
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WHAT IS AN INHERITED PROPERTY?
An inherited property is a home that you acquire through the laws of descent and distribution. It is a term that is used to describe property that a person may acquire through a will. If you inherit a property it means that you have required it from a recently deceased family member or acquaintance.
WHAT ARE THE DIFFERENT WAYS TO INHERIT A PROPERTY?
There are three main ways that you can inherit a property:
- If the deceased owned the property outright, then the terms of the will will state who inherits the property
- If the deceased was a tenant in common, then their share is decided by the terms of their will
- If the deceased owner was held under ‘joint tenancy’, the surviving owner inherits the property automatically
In the event that there is no will, exactly who will inherit the property is dependent on the laws of intestacy (unless it is a joint tenancy).
What happens when you inherit a house UK?
When it comes to inheriting a home, one of the first questions you will have is what happens when you inherit a house UK? Below, we take a look at the steps involved when inheriting a property:
1. The will
The first step will be establishing your legal relationship with the inherited home. Was there a will left? Have you been named as a beneficiary? Are you an executor? If the deceased did not leave a will, then the next of kin will be able to prove that they have the legal right to deal with the estate. They can do this by applying for a ‘grant of administration’. If there is no will, the law will decide who inherits what.
2. Probate
The next step will be to go through probate. Probate is the legal process during which the executors of the will sort out the deceased affairs. This will mean that any assets will be gathered and evaluated, unpaid bills and taxes will be sorted and what is left in the will will be distributed. The probate process can be lengthy so don’t expect your property straight away.
3. Mortgage
Until probate has been completed, the property will not technically be yours. During this period there is not much you will be able to do, however it is worth checking the property to see if it has a mortgage. If this is the case, then you should get in touch with the mortgage lender to help explain the situation. The majority of mortgage lenders will have a period of grace where the mortgage payments are suspended until the estate has been sorted out. After the property legally becomes yours, the payments will restart.
4. Transfer ownership of the property
Ownership of the property will be transferred to you once probate has been completed and the will has been administered. After you become the owner of the property you can register it at the Land Registry. Unless the property has been sold or is mortgaged you will not have to do this, however, it gives you the best proof of ownership. It is important to talk with your solicitor in order to fully understand the process.
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WHAT HAPPENS WHEN YOU INHERIT A PROPERTY WITH A MORTGAGE?
An aspect of inheriting a property is the mortgage that it brings along with it. If the deceased has life insurance, this can potentially be used to help clear the mortgage.
If the deceased does not have a life insurance policy that covers their mortgage, then you will need to find out what the mortgage lender will be expecting from you. You should carefully check the terms of your mortgage for any details regarding what happens in place of the death of the mortgage holder. Typically any payments will be frozen until probate has been sorted, but the interest may continue during the period.
Should the deceased have owned cash and other assets, then the mortgage will typically be viewed as a debt that will need to be repaid before the property is passed on.
The property will become yours after the executors of the will have settled debts and taxes. Should the property still have a mortgage on it then you should get in touch with the lender about getting the mortgage transferred into your name. If this is the case, it opens you up to issues, such as passing affordability tests for a new mortgage if you already have a mortgage on your current home.
You could also sell the property in order to pay off the mortgage if you have concerns about taking on a new home.
Inheriting a share of the house
If you have inherited a property alongside other people, then you will all own equal shares of it, unless stated otherwise. From there, you must all decide the best course of action for dividing up the asset. There are two types of joint ownership:
If you are joint tenants then everyone will have equal rights to a property, which is then split equally between all of the beneficiaries. Should one of the beneficiaries die, then the property will remain in the hands of the others. The last beneficiary with the rights will pass the property on to whomever they choose.
If you are tenants in common, then each person will have a share of the property. However, unlike with joint tenants, the share does not have to be equal. There is also more freedom with where the property can end up, as the beneficiaries can pass on their share to someone else.
DO YOU PAY INHERITANCE TAX ON INHERITED PROPERTY?
If you have inherited a property in a will, then there are several forms of tax that you will be subject to, inheritance tax being one of them. Below, we take a closer look at some of the taxes that you will be liable to pay when dealing with inherited properties:
In the event that the deceased estate (property, savings, shares, and other various assets) comes to a greater total of £325,000 then inheritance tax will be due, except in certain circumstances.
If the property that you have inherited is a holiday let or a buy-to-let then you will be required to pay income tax when you start receiving income from the rent.
If you decide to sell your inherited property, then you may have to pay capital gains tax.
INHERITANCE TAX ON INHERITED PROPERTIES
Exactly how much inheritance tax you will have to pay will depend upon the total of the deceased estate and the value of the inherited property. As a rule of thumb, if the total estate is worth more than £325,000 then 40% of everything over this total will need to be handed over.
There is an exception, however, for direct descendants to have main residences passed onto them. So if the property you are inheriting is your parents or grandparents, then the tax bill will be reduced.
The main residence nil-rate band is £175,000 for the tax year 2023/24. This allowance is then added onto the main inheritance tax nil-rate band of £325,000. it depends upon the value of the property, you have the potential to inherit property worth up to £500,000 without needing to pay inheritance tax.
As an inheritance tax allowance can be passed between spouses and civil partners, there is no inheritance tax to pay in the tragic event of the passing of a spouse or civil partner. This means, if one of your grandparents, or parents, has already passed, and they did not use their inheritance tax allowances at the time, then you have the potential to inherit an even more valuable property.
An example of this would be if both parents have died, and the first to die passed on all of their assets to the surviving spouse, then that spouse could pass on a property and estate worth up to £1,000,000 to their children or grandchildren tax-free.
If you have to pay tax it will be due within 6 months of the deceased’s death. Typically you can expect this to be settled by the executors of the will. Thankfully, it is possible to pay the inheritance tax in annual instalments to avoid having to sell an inherited property in order to pay the tax.
Income tax on inherited properties
Income tax is a tax that you will not be required to pay unless you are earning an income. If you were to rent the property out, then you will need to declare this on a self-assessed tax return. The income tax that you earn will be due at your marginal rate, and this will depend upon your total income for the year.
Capital gains tax on inherited properties
If you decide to sell your inherited property, then chances are you will find yourself having to pay capital gains tax. Should the property have increased in value since you inherited it, then capital gains tax may be due on the rise in value.
If you are a basic-rate taxpayer then you can expect to pay 18% on gains from a residential property. If you pay a higher or an additional band of tax then the rate you pay will rise to 28%. Everyone gets an annual capital gains tax allowance and in the 2023/24 tax year, this is £6,000 per person but is soon to be cut to £3,000 per person for the 2024/25 tax year.
Should the profit on your inherited property come to less than £6,000 then you won’t have to pay capital gains tax, unless you have used up your annual allowance.
If you make the inherited property your main residence and move into it, then capital gains tax will not be due when you sell it.
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PROS AND CONS OF RENTING OUT THE PROPERTY YOU INHERITED
One option for your inherited property is to rent it out. However, when deciding to rent the property you will have a lot to consider, as with any investment decision, there are pros and cons to be thought about.
Below, we take a quick look at the pros and cons involved with renting out an inherited house.
Pros
- You will receive a steady income from your rental payments
- If you have inherited the property alongside other people, you will be able to split the monthly payments between you all
- You will have no inheritance tax to pay until you decide to sell
- If the market is going through a difficult period, there will be no rush to sell, and you will still be receiving monthly payments.
Cons
- The property may be in need of renovation and can eat away at your budget
- If you do not live locally, you may have to face the extra costs of hiring a letting agent to help manage the property
- Any profit you make will be subject to tax and will be treated as income
INHERITING A BUY TO LET PROPERTY
If you inherit a buy-to-let property, you will need to decide what to do with them. If you are planning to move into the property yourself or sell it, you will need to check the terms of your rental contract.
If you decide to take over the tenancy and continue renting out your property, then you will need to get a new contract drawn up, naming you as the new landlord.
If there is a buy-to-let mortgage, then you have two options, you can either get the mortgage moved into your name or remortgage your buy-to-let to a new deal. Regardless of which of these options you choose, you will have to pass the lender’s affordability tests.
OTHER PROPERTY TO RENOVATE
Looking for a repossession property in need of renovation? Maybe you want to flip it for a quick profit or perhaps turn it into a property you can let out, whatever the reason, we can find you a great deal.
Often found to be low value with great potential, structurally damaged homes could become a perfect investment for any keen, experienced or beginner landlord. Find out more about structurally damaged homes below
When looking for property to invest in, one type of property that is often overlooked is water and fire damaged homes. As they are often undervalued, they can provide you with high return on investment, as well as a nifty investment opportunity.
When looking at investment opportunities, inheritance is one that crops up for most people at one point or another. Whilst you can move into your inherited property or sell it, you could also rent it out for a profit.
OUR LOCATIONS
Thinking of buying a BMV property, but have a specific area in mind? To give you an understanding of just how broad your property choice is, here’s the areas where we most regularly buy BMV property…
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Start your property journey today
EXAMPLES OF PROPERTY INVESTMENTS
Have we got your interest? Well, how do you know that we’re going to provide great deals? Just take a look at some of our recent sales in the area, they speak for themselves!
Want to see more of our deals? Check out our recent deals.
Buy Refurbish Rent Refinance
Scunthorpe, DN16
House, Semi-detached Freehold
25% BMV
Yield
8.3%
- Freehold
- Driveway
- Rear garden
- Close to local amenities and transport links
- Could achieve £700 – £750 pcm
- Vacant upon completion
Buy Refurbish Rent Refinance
Scunthorpe, DN16
House, Semi-detached Freehold
25% BMV
Yield
8.3%
- Freehold
- Driveway
- Rear garden
- Close to local amenities and transport links
- Could achieve £700 – £750 pcm
- Vacant upon completion
AirBnB
Bakewell, DE45
House, Terrace Freehold
22.1% BMV
Yield
15.2%
- Freehold
- Grade II listed
- £51,000 per annum gross rental
- £200 nightly average
- 70% predicted occupancy
- RICS £420,000 in current condition
AirBnB
Bakewell, DE45
House, Terrace Freehold
22.1% BMV
Yield
15.2%
- Freehold
- Grade II listed
- £51,000 per annum gross rental
- £200 nightly average
- 70% predicted occupancy
- RICS £420,000 in current condition
Refurb to Flip
Tadley, RG26
Bungalow, Detached Freehold
45% BMV
Exit Profit
20%
- Freehold
- Refurb opportunity
- RICS value £300,000
- Strong demand from owner occupier
- Great transport links
- 50 Miles from London
Refurb to Flip
Tadley, RG26
Bungalow, Detached Freehold
45% BMV
Exit Profit
20%
- Freehold
- Refurb opportunity
- RICS value £300,000
- Strong demand from owner occupier
- Great transport links
- 50 Miles from London
Buy To Let
Bradford, BD12 7DE
House, Terraced Freehold
24.3% BMV
Yield
10.8%
- Freehold
- 4.1 Miles to Bradford City Centre.
- 1.5 Miles to M606 & M62.
Buy To Let
Bradford, BD12 7DE
House, Terraced Freehold
24.3% BMV
Yield
10.8%
- Freehold
- 4.1 Miles to Bradford City Centre.
- 1.5 Miles to M606 & M62.
WHY SHOULD YOU INVEST WITH US?
While our investors database is great perk of our service, our team are the real reason you should buy your next investment property through us.
Without their extensive knowledge of BMV property, we wouldn’t be able to source you generously discounted deals, nor ensure your purchase is quick and hassle free. All ingredients that allow you to make wise investments and grow your portfolio fast.
It’s also our team that allows us to grow our relationship with you as an investor, even after your purchase has gone through. Buy your investment property through us and rest assured you’ll be far more to us than just a number – we’ll know you on a first name basis.
WHY SHOULD YOU INVEST WITH US?
While our investors database is great perk of our service, our team are the real reason you should buy your next investment property through us.
Without their extensive knowledge of BMV property, we wouldn’t be able to source you generously discounted deals, nor ensure your purchase is quick and hassle free. All ingredients that allow you to make wise investments and grow your portfolio fast.
It’s also our team that allows us to grow our relationship with you as an investor, even after your purchase has gone through. Buy your investment property through us and rest assured you’ll be far more to us than just a number – we’ll know you on a first name basis.
