What to Do When You Inherit Property

inheritance paperwork

Inheriting a property is always a daunting prospect and can be extremely stressful if you are dealing with grief at the same time. Knowing what to do when you inherit a property can help you understand the process and reduce the stress and heightened emotion significantly.

If you are inheriting property, there are several factors to consider. First, you will want to ensure the probate process is as smooth as possible and then you will need to decide what to do with the property afterwards.

This guide explains everything you need to know about inheriting a property.

What Happens if You Inherit a Property?

The first factor you will need to consider is whether you are listed as a beneficiary or the executor and beneficiary in the will.

If you are simply a beneficiary, then the process of probate becomes much less taxing providing you understand what the executor is doing and is not detrimentally harming your inheritance. A beneficiary will allow the executor to complete the probate and will receive the property when probate is complete.

If you are both executor and beneficiary, you will need to ensure probate completes correctly and assets are distributed according to the will.

When inheriting property, you should be aware of:

  • Any existing mortgage or debt secured against the property
  • Any inheritance tax liability

What Happens if You Inherit a Share of a Property?

If you inherit a share of a property, the will dictates how the share is split and arranged.

For example, the will might stipulate you are bequeathed 50% of the property with the remaining 50% going to a sibling.

The share will typically be arranged in one of two ways, either tenants in common or joint tenancy. In some cases, a will does not stipulate how the split is arranged so you will need to negotiate with the solicitor overseeing the property transfer and the person you share the property with to decide.

Bear in mind tenants in common and joint tenancy have different repercussions if you wish to live in or sell the property and you should ask your solicitor to outline the differences. For some, tenants in common will be ideal whereas others might find it detrimental.

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How Does Probate Affect an Inherited Property?

Probate is the process of proving a will and administering the estate of a deceased person. The probate procedure is designed to settle the estate in full. This means allocating assets to beneficiaries and settling any outstanding debt.

In the first instance the property will be checked against public records to see if any charges are registered against it. Mortgage providers put charges on properties to ensure they recoup costs in the event that someone passes away.

Inheriting a Property with a Mortgage

If your property has no mortgage outstanding the inheritance process will continue unhindered. If a mortgage is outstanding, you will have to settle the mortgage before the property can be released to you.

There are several ways of repaying a mortgage that is outstanding on a property in probate:

  • You can repay the debt from funds held by the estate if available
  • You can repay the debt using your own funds
  • You can take a bridging loan to repay the debt and then remortgage the property onto a standard mortgage when it has cleared probate
  • You can ask the executor and solicitor to arrange sale of the property and settle the debt

Selling a Property Under Probate

The last option is not an ideal solution. In England and Wales, it is illegal to sell a property before the Grant of Probate has been issued. However, you can list a property for sale and accept offers so that when probate completes the sale then completes.

You can technically exchange contracts for a property transaction prior to receiving a Grant of Probate. However, we would advise against this as a Grant of Probate can take many months to be issued, which is outside of your control. To register the property with the Land Registry, a Grant of Probate will be required.

Tax Due on Inherited Property

Tax is treated in a similar way to any debt secured to the estate.

When you inherit a property, the solicitor will arrange for it to be valued alongside other assets in the estate. If this valuation contributes to the estate exceeding the inheritance tax threshold, the tax will be owed before probate can complete.

In cases where there is an inheritance tax liability you should hope that your loved one has had inheritance tax planning and created a will in a way that is financially prudent for beneficiaries.

However, we do not live in an ideal world and sometimes estates are not set up to accommodate inheritance tax liabilities. In these instances, you will need to either pay the tax from the estate or from your personal funds.

You may also be able to secure a bridging loan for the tax amount with the agreement that you will sell the property when it is released from probate or remortgage onto a traditional loan to repay the bridging finance.

What Our Clients Have To Say

Keep, Sell or Rent?

Once you have navigated the complex probate process you will ultimately be left with a property. What you decide to do with the property is then entirely at your discretion.

Selling a property is usually preferable if you want to free the cash tied up in the asset. If you jointly inherited the property, selling the property may not be an easy option depending on whether the other party wishes to sell. There is often sentimental value attached to inherited property which can make it an even more difficult decision to sell.

You may choose to rent out the property for ongoing monthly income. You will essentially become an accidental landlord. One benefit of retaining a property for letting purposes following an inheritance is that the additional rate of stamp duty land tax is not payable. This is because you are technically not purchasing the property. In addition, if you must remortgage the property on a buy-to-let basis to clear any outstanding debts on the estate, raising the mortgage is likely to be more straightforward than raising a residential mortgage. This is because buy-to-let mortgage lenders will largely determine the maximum mortgage amount available from the rental assessment of the property, rather than your income or financial commitment position.

Lastly, you may choose to live in the property. This is made simpler if you inherited the property outright but can be complicated if you only inherited a share. If the other party wishes to sell the property you may need to negotiate buying out their share and obtain a residential mortgage to do so.

Speak to a Specialist

Inheriting a property may be both a blessing and a curse, especially if the will is not up to standard or there is an inheritance tax liability.

In some cases, you will need to arrange finance to clear probate. This may be via a residential or buy to let mortgage.

Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Brokerage. Boon Brokers offers fee-free mortgage advice.

Contact Boon Brokers to discuss the mortgage options around your inherited property today.

Gerard BoonB.A. (Hons), CeMAP, CeRER

Gerard is a co-founder and partner of Boon Brokers. Having studied many areas of financial services at the University of Leeds, and following completion of his CeMAP and CeRER qualifications, Gerard has acquired a vast knowledge of the mortgage, insurance and equity release industry.