A guide to inheriting a house in the UK

Man holding a toy wooden house

It is not uncommon that, after the death of a loved one like a parent or guardian, somebody can be suddenly left with another property as part of their inheritance.

But while for many inheriting a house is inevitable, the process can be overwhelming and there are many aspects of inheritance which aren’t just common knowledge.

From capital gains and inheritance tax to selling an inherited property, here is a complete guide to inheriting a house in the UK.

What happens when you inherit a house?

While it is an understandably emotional time, one of the first things to consider following the death of a loved one is whether or not they had a will in place to determine who would be inheriting their home, and who would be the ‘executor’.

If there is a will in place, the named executor must apply for probate – this is the process which sees the will made official in the eyes of the law. Once this has been passed, it will then be down to the executor to settle any relevant debts and gather, evaluate and distribute the assets of the deceased – this includes their property.

The estate cannot be distributed until all relevant debts are settled. The executor of the will is responsible for these debts, but shouldn’t have to dip into their own pockets to pay them (unless they were named as a guarantor). These should be paid off by selling any remaining assets – if there is not enough money to cover the debts, they will be paid in priority order with any remaining debts likely be written off.

Read more: Making a will – How to write a will in the UK

I inherited a house – how do I put it in my name?

Once all relevant debts are paid off, the executor can transfer the property into the name of the beneficiary via the Land Registry – this person can then decide whether they want to keep, sell or rent out the property.

Who inherits when there is no will?

When somebody passes away with no will in place it is known as ‘dying intestate’. In this scenario, the next of kin would have to apply for a grant of administration – if this is passed, the person will receive a ‘letter of administration’ to prove that they are legally permitted to deal with the deceased’s estate.

Who inherits what will be decided by the law, which is why having a UK will is so important – without one, your assets could be distributed differently to how you’d like.

Inheriting a house with siblings in the UK

If you have any brothers or sisters, there is a good chance that you may be inheriting a house from your parents together.

If this is the case, you will become ‘joint owners’ of the property and will have to decide whether you wish to become either ‘joint tenants’ or ‘tenants in common’:

  • Join tenants – act as one single party meaning that, if one sibling passes away, the other gets complete ownership of the property.
  • Tenants in common – can pass their percentage of ownership onto a beneficiary when they pass away. They can have different percentages of interest in the property, which can be useful if one person is paying more towards the property than another.

Can you inherit a house that still has a mortgage?

When inheriting a house with an outstanding mortgage, you become responsible for any ongoing payments. Most lenders will be sympathetic with your situation and, when you contact them, will freeze monthly payments (at least until probation has passed) – note, though, that interest on these payments may build up.

Hopefully, the mortgage will be covered by the deceased’s life insurance policy, meaning that the mortgage will be cleared and the beneficiary will have complete ownership of the property.

>>> Compare cheap life insurance quotes with Confused.com <<<

If the mortgage is not covered by a life insurance policy and they have other assets of significant value, you will be expected to pay off as much of the remaining debt as possible – alternatively, the property can be sold, with the beneficiary keeping any of the left over funds.

Inheriting a house while on benefits

If you receive benefits such as Employment and Support Allowance (ESA), income support, housing benefit, jobseeker’s allowance, universal credit or any other type of benefit, then inheriting a property might have a significant impact on the amount you receive – in some cases, you could find that you are no longer entitled to any benefits at all.

Scenarios vary from person to person, so the only sensible advice available here is to get in touch with a solicitor to discuss your options. It is easy for this complex situation to result in a fraud offence, so tread carefully when inheriting a house while on benefits.

Selling an inherited property

In an ideal scenario, the beneficiary will be inheriting a house with no outstanding mortgage and all ongoing debts (such as utility bills) up to date – once you’ve paid the relevant inheritance tax, you can finally look to sell the property. We’ll discuss inheritance tax in greater detail later on.

Selling an inherited property follows the same process as selling any other property, only you’ll need to clear through the house first. You must decide whether you wish to retain, sell or donate any of the deceased’s assets to charity. If the home had been left to deteriorate in recent years (usually the case if its residents were elderly) then you may also wish to redecorate, making it more appealing to potential buyers.

You should get the expert opinion of a local estate agent before doing this, as they might be able to give you an estimation of what value could be added to the property by changing carpets, adding a lick of paint or even fitting a new kitchen or bathroom.

Once on the market, the process is the same as with any other home – in some cases, you may need to pay capital gains tax, which we’ll discuss shortly.

Home insurance for an inherited property

Home insurance is one of the many things you’ll need to consider when inheriting a house – remember that you won’t automatically take over the home insurance policy upon becoming the owner of the house, even if you keep up the payments. You’ll need to contact the insurance company to let them know that you have taken over ownership of the property.

In most cases, the insurance will remain in place for the remainder of its term, giving you time to find a new deal either with the same provider or elsewhere – the cover might auto-renew, so make sure that this option is disabled.

If you aren’t moving into the house permanently, there are a few specialist home insurance policies you should consider. These include:

  • Unoccupied home insurance – if the property will be left unoccupied for more than 30 days, you’ll need specialist cover. This is because unoccupied properties are a higher risk, given that issues like water leaks may not be identified for an extended period, causing greater damage than they would if identified immediately.
  • Landlord insurance (or buy-to-let insurance) – If you plan on renting out the inherited property, a standard home insurance policy won’t provide you with adequate cover.
  • Second-home insurance – If keeping your original property as well as the inherited one, you’ll need a specialist home insurance policy to provide cover for a second home.

For all of your specialist home insurance needs, Admiral offers comprehensive cover at a competitive rate – get a free quote now!

Inheritance tax - do I have to pay inheritance tax on my parents’ house?

When inheriting an estate (savings, property and any other assets), you could be forced to pay a bill of up to 40% of its value – this is called inheritance tax (IHT).

There is a standard tax-free IHT allowance of £325,000, with a tax rate of 40% set on anything over this amount.

Read more: Life insurance and inheritance tax

Who pays inheritance tax?

It is the responsibility of the executor of a will to arrange inheritance tax payments – if there is no will, the responsibility lies with the administrator of the estate.

The tax can be paid using money raised from the sale of assets (such as property) or any money left over within the estate (savings etc.). Alternatively, IHT can be paid via a Direct Payment Scheme (DPS) which pays some, or all of the tax using the money in the deceased’s bank account or building society.

When do you pay inheritance tax?

Inheritance tax must be paid within six months of the person’s death – after this period, HMRC will begin charging interest.

IHT on certain assets (particularly property) can be paid in instalments of up to ten years, although there will be interest charged on the outstanding amount.

How to avoid inheritance tax on a property

While there is no way to completely abolish inheritance tax (unless the estate is worth less than £325,000), there are ways in which you can significantly reduce it.

From giving an early gift to family members, to taking out a life insurance policy written into trust, you can learn more about reducing inheritance tax here.

Read more: How much does life insurance cost? The average cost of life insurance in the UK

Capital gains tax on an inherited property – what is capital gains tax?

In regards to inheritance, capital gains tax must be paid on the increased value of a property between its initial value for probate purposes and its eventual sale value.

The amount of tax owed is calculated on how much the property has risen in value since the original owner passed away.

If the property does not increase (or decreases) in value, then no capital gains tax has to be paid.

How to avoid capital gains tax on an inherited property

The best way to avoid paying capital gains is by selling the property during probate – the amount that a property will rise in value during this period is likely to be minimal, meaning any CGT that is owed will be minimal, too.

Read more: The truth about common inheritance tax myths

Expenses included in inheriting the property, such as solicitor, surveyor and valuation fees can be deducted from the cost of CGT, so be sure to keep hold of any receipts – no matter how small or trivial the cost, it all adds up!

Everybody has a maximum allowance of £12,000 that is free of CGT, but this might have already been used up if you have sold another property or business in the same financial year.

Financial advice with Bobatoo

Whether you’re inheriting a house, looking for a great deal on your car insurance or simply saving for a holiday, Bobatoo has a range of useful and interesting articles which might be of interest to you. Check out some of the related articles below and visit us on Facebook, where you can be kept up to date with all of the latest news.

Related Articles