If you are the beneficiary of an estate and with it you have inherited a house or property, a key consideration will likely be what to do next. The most suitable choice for your individual circumstances will be a very personal decision. To help you to navigate the road ahead, we shall tackle the question: what do you do when you inherit a house?
Your first considerations when you inherit a house
A number of options will be available based upon the specifics of both the inherited property and your personal circumstances. Hence, a simple answer will not be available and we would stress the importance of seeking professional advice form a trusted accountant or tax advisor. The obvious first consideration, however, will likely be inheritance taxes.
Inheritance tax (IHT) will be applied to the value of the estate that is above the IHT threshold of £325,000, and in most circumstances will be charged at 40%. However, this threshold can be raised in specific instances such as the IHT allowance of a previously deceased spouse being carried forward.
Other taxes such as stamp duty or capital gains tax will only be triggered during the actual sale of a property, as opposed to a transfer of ownership through inheritance. It may require consideration if the property is to be shared amongst multiple beneficiaries and a sale is necessary to transfer sole ownership to an individual.
What are your options when you inherit a house?
When inheriting a home it will be important to understand the nature of the property as it may not be a private residential dwelling. If it is an investment property such as a buy-to-let or commercial premises, there may be the needs of tenants to attend to which will require careful consideration and seeking professional advice will be recommended.
Having understood the tax implications and the nature of the property, we can move onto your options with regards to the future of the property. Your decisions will be impacted by simple factors such as your residential distance from the house, your emotional attachment to it and also it’s physical condition and location. However, your choice will fall into one of two categories, either sell it or keep it.
Sell the house
If you inherit a property, the most obvious option may be to sell it. Many factors will influence this but the decision may be based on the total value of the estate, your need for the equity or even a lack of knowledge about your other options. The first consideration, however, will be to check that there is no mortgage outstanding on the property.
If lending still exists on the property it will be necessary to speak with the lender to understand the specific terms and conditions of the mortgage. If other assets exist within the estate these could be used to settle the mortgage or it may be covered by a life insurance policy, if one is in place. Otherwise, it may be possible to transfer the mortgage into your own name, but once again always seek professional advice.
If you choose to sell a house that has been left to you, the aforementioned capital gains tax may apply to yourself and stamp duty may apply to the home buyer. In some circumstances selling your home and moving into the inherited property may be more tax efficient. In which case you will obviously be retaining the property, which we shall delve into in more detail next.
Keep the house
You may choose to make the house your own main residence, as mentioned potentially providing the opportunity to earn money from your previous residence. You may also choose to earn rental income from the inherited property by renting it out. This could be a great opportunity to earn passive income.
There are many different passive income ideas, however, for a long term strategy property investing presents many benefits. Earning rental income from property can free-up time to focus on other areas of life. If you fully manage the property yourself this will of course require a hands-on approach.
Through the Asset Academy training, it will become clear that properties can be managed in a very hands-off and passive way. The success of a rental property will be determined by many factors, so a certain level of knowledge will be required. For a more detailed look at what is passive income and how it can be generated from property, why not have a read of How To Make Passive Income With a Rental Property.
What do YOU do when you inherit a house?
When inheriting a home, it can be seen that the answer to the question will be dependent on many factors. If you decide to sell the house it will be worth considering the best way to attract potential buyers. Logistical, financial and time restraints may come into play, however you could significantly benefit from making improvements to the property.
If you decide to keep the house, it could either be your main residence or become an income generating asset. Before opting to rent it out, however, pay attention to its location, design and its renting potential.
If becoming a property investor is a path that appeals to you but you feel unsure about how to go about it safely, we are here to offer support and learning through a knowledgeable community of investors. Simply reach out by contacting us here. For an easy introduction to property investing, why not join a FREE one hour Discovery webinar to take your first steps.
Please note, the information provided in this article is given as guidance only and should not be considered investment advice. Inheritance tax planning should be undertaken only with a suitably qualified financial advisor.