A death in the family and selling a house are both up there with the most stressful life events you can experience. So, it's no surprise that selling a house you've inherited - possibly the family home you grew up in - can be emotionally draining.
While selling an inheritance is much like any other house sale, additional legal aspects need to be considered. We look at what you need to know before your property goes on the market, from wills and probate to inheritance tax.
1. Read the will
If the person who has died left a will, it will lay out the name of the executor (the person in charge of making sure the last wishes are carried out) and the beneficiaries (the people who will benefit from the estate). If the property has been left to more than one person - you and your siblings, for example, deciding whether to sell could be less straightforward.
2. Apply for probate
After someone has died, the first step in organising their estate is to apply for a grant of probate from the Probate Registry. If the person left a will, the executor needs to make the application. If they didn't, their spouse, civil partner or adult child can apply to administer the estate and apply for probate. There is advice about how to do this on the government website.
Once probate has been granted, the executor has the legal authority to act on behalf of the deceased and get access to bank accounts, investments, and property so it can be distributed among beneficiaries. It usually takes six to eight weeks for probate to be granted.
3. The mortgage status
Often mortgages and loans have already been paid off on inherited property, but this is not always the case. If you have been left a property with an outstanding mortgage, the monthly payments will continue to fall due. Get in touch with the lender, and most will set up a payment holiday for you whilst probate is going through. Once the property is legally yours, you will be responsible for the mortgage payments.
4. Selling the property
To sell a property you have inherited, you may need to empty the property of its contents. Although you may want to retain some of the furniture to help the property look more attractive to buyers. You can hire professional house clearance companies to help you.
If the property looks dated, you could consider redecorating and replacing carpets to make it more appealing to potential buyers. Just be careful how much you spend – too much, and you may not recoup your costs. Local estate agents will be able to value your property and suggest how much renovations could add.
Once your property is up for sale, the process is the same as selling any other home, although you may have to pay inheritance tax or capital gains tax on the proceeds.
5. Pay Inheritance Tax
Inheritance tax, at a rate of 40%, must be paid on estates of more than £325,000 - this threshold increases to £500,000 if the estate is left to the deceased's children or grandchildren. There is no inheritance tax to pay if left to a spouse or civil partner.
More information about how inheritance tax works can be found on the government website.
The executor of the will is responsible for paying inheritance tax. They can use the funds from the estate to make this payment. Inheritance tax is due by the end of the sixth month after the person died. For property, it is possible to pay in instalments until the home is sold.
6. Pay Capital Gains Tax
If the property has increased in value since you inherited it, you will have to pay capital gains tax on the profit. If you are in the basic tax band, you will pay 18% CGT on any profits from your sale. If you are in the higher tax band, you will pay 28%.
Everyone has an annual CGT personal allowance, for tax year 2020/21 this is £12,300. Only gains above this amount are taxed.
If you moved into the property and lived in it as your primary residence, capital gains tax won't be payable when you sell. You can also reduce the capital gains tax owed by quickly selling the property after you inherit.
Frequently asked questions
How long does it take to sell an inherited property?
You won't be able to sell the property until probate is completed, unless your name is already on the deeds – for example, if you're the deceased person's spouse. This process may take anywhere from eight weeks to a year. It's not uncommon to put the property on the market whilst waiting for the probate to be finalised, to allow for a quick sale once completed.
Are the services of a solicitor needed to sell an inherited property?
You can apply for probate yourself using an online form on the government website, or you can get a solicitor to act on your behalf. While the process is simple, using a solicitor can minimise your paperwork and help you avoid the pitfalls of dealing with family members.
Do I have to pay income tax on inherited property?
You will only need to pay income tax on a property you inherit if you earn rental income from it.
Do I have to pay stamp duty on an inherited property?
You do not have to pay stamp duty when you inherit property, but you may have to pay inheritance tax (see above).
How much does it cost to sell an inherited property?
If you decide to sell a property you have inherited, there are other costs to consider besides the inheritance tax and capital gains tax.
- If you apply for probate yourself, the application fee is £215. If you use a solicitor, their fees are calculated based on the estate's value – typically between 2% and 5%.
- You may also choose to spend some money sprucing up the property before putting it on the market.
- Once the property is legally yours, you will need to cover mortgage payments, insurance, council tax and utility bills whilst the property is empty.
- Like a normal house sale, you will also need to pay estate agent fees and conveyancing fees.
We can help
If you have inherited a property in central London and are considering selling it, talk to one of our friendly team. We can help you value the property and offer advice on renovations that could increase the property price. Get in touch