You've inherited a property. Now what?
Important information - please keep in mind that the value of investments can go down as well as up, so you may get back less than you invest. Tax treatment depends on individual circumstances and all tax rules may change in the future.
Inheriting a property
Many people inherit property when a loved one dies. And while it may be the last thing you want to deal with in that moment, understanding what happens next could help you in the long run. If you've sold a property and are wondering what to do with the proceeds, you might like to talk to one of our financial advisers to see if a personal recommendation is right for you.
What happens before you inherit a property?
The executor will have had to go through a number of complex stages before the bequeathed property actually becomes yours. The executor will have to:
A will shows your legal relationship with an estate and whether you're a beneficiary (entitled to a share of the estate) or an executor (responsible for sorting out the estate). If there isn't a will, the next of kin can apply for a 'letter of administration' but the law decides who inherits what.
This is the legal process which sorts out the deceased's affairs (pay outstanding bills or tax for example) before sharing out what's left of the estate according to the will, or by what the law decides if there’s no will.
Ownership of the property will only be transferred to you once probate has been completed. Strictly speaking, you don't have to register ownership with the Land Registry unless you're planning on selling it or taking your own mortgage out on it. At some point in the future it will need to be done, so completing this sooner rather than later can make things more straightforward further down the line.
Understand what you're dealing with
It's important you understand the legal ownership status of the property you're inheriting (or part inheriting).
Joint tenancy
If the property is held under a joint tenancy, then the surviving owner automatically inherits it.
Sole ownership
If the property was owned outright by the deceased, their will should outline who inherits it.
Tenants in common
If the property is held as tenants in common, the will should outline who inherits the deceased person's share.
If you inherit a property with others, each beneficiary will have equal rights to the property unless a will specifies otherwise. Here's the legal breakdown of the two types of joint ownership.
Joint tenants
In this case you'll have equal rights to the property, and it’s split equally between the number of beneficiaries. If one beneficiary dies, the property will stay in the possession of the others. The last surviving beneficiary will be able to pass the property on to the beneficiary of their choice.
Tenants in common
Each beneficiary has a share of the property, but the share won't necessarily be equal. One of the biggest differences with tenants in common is that beneficiaries can pass on their percentage to someone else if they want to, giving more freedom in where the property ends up.
If you inherit part of a property, anyone already living there may have been given rights to stay - which will be expressed in the will. If that's not the case, you may have to agree whether they continue living there and under what terms.
If a tenant lives in the property, you will have responsibilities as a landlord and you will need to consider their legal rights.
Love, sell or let your property?
On the one hand, inheriting a property is an incredibly generous gift. On the other, it carries a lot of responsibility. You - along with any other potential beneficiaries - have a choice to keep the property for yourself, sell it or rent it out. It’s a big decision and important to weigh up the pros and cons.
Love it
Sell it
Let it
You won't need to pay Income Tax or Capital Gains Tax immediately if you inherit a property for the majority of the UK, although the rules differ for Scotland.
Selling an inherited property - if the inherited property isn't declared with HM Revenue & Customs (HMRC) as your main home, you'll have to pay Capital Gains Tax on any profit you make when you sell it. If you own two properties, you have to tell HMRC which is the main residence within two years of owning them.
Renting out an inherited property - you may have to pay Income Tax on the rental income.
Properties held in trust - if the property is held in a trust, you are the beneficiary and the trustees are the legal owners and responsible for paying tax on income the trust receives. As beneficiaries of the trust you may be able to enjoy rights to the property - in other words live in it or receive some of the rent paid on it. You may still have to pay tax on any income you receive from the trust.
The exception to this rule is if the property is held in a bare trust (these trusts are for children under the age of 18 - or 16 in Scotland). In which case, the trust would be the legal owner but as the beneficiary, the child would be responsible for paying tax on any income the trust receives.
You've sold your property. What are your options?
Deciding what to do with a large lump sum of money isn't easy. If you want more of a personal recommendation, our financial advisers can help. Equally, you can invest with help from our online guidance and tools. The choice is yours.
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Important information: please note that this information and our guidance tools are not a personal recommendation in respect of a particular investment. If you need additional help, please speak to an authorised financial adviser. You should regularly reassess the suitability of your investments to ensure they continue to meet your attitude to risk and investment goals.
