If you have inherited a property as a result of a relative or loved one passing away and leaving it to you in their Will, the process of dealing with it can often be quite stressful, on top of dealing with the emotional difficulty.
The process of transferring ownership of assets from the deceased to the party named in the Will is called probate.
What is probate?
Probate is the name given to the legal process of dealing with the property, money and other assets of a person who has died.
It is not always necessary and is typically reserved for high value assets (properties, for example) - when the financial value is relatively low, probate is not needed. There is, however, “contentious probate” which is usually reserved for when there are disagreements in regards to the general management of the estate.
The process has to be applied for by one of the named executors of the Will in order for the transfer of assets to begin.
Inheriting a property without a mortgage
Inheriting a property can be a difficult situation as if it comes with a mortgage, you then inherit the responsibility of making the payments or discussing with the lender a plan to cancel it.
If you inherit a property without a mortgage, however, you are often put in quite an advantageous position due to the number of options it can present you.
Keeping the property
There are a number of benefits to keeping a property that you have inherited; not least of all if it is a property that holds a great deal of sentimental value, i.e. if it is the house you grew up in and you want to keep it in the family.
The practical element of keeping the property is that you have the resource of a second home available at your disposal however the biggest advantage is the financial upside; owning a second home can act as an investment or asset for the future.
With this in mind, the expenses that come with managing a property can add up quite quickly; managing two properties may not be a responsibility you can handle in the long term. It is important to weigh up the positives (asset for the future, increase in value over time) with the negatives (outgoings, structural repairs etc.)
Renting Out The Property
Renting is very much the middle ground between keeping and selling. For the positives (stream of income) there are also some negatives (changes to insurance).
One of the biggest upsides to renting is, as we mention, the stream of income. Having this regular stream of income every month can lessen any burden you may have in regards to finances; paying off your own mortgage, for example, could now be done quicker and easier than before.
However, it is by no means a win/win situation. Becoming a landlord and owner of a rental property means your taxes change, as do your insurance policies, not to mention the general responsibilities involved in being a landlord.
Being a landlord can look like a very appealing task but it can be a very time-intensive responsibility, essentially becoming a full-time job.
If you know you can handle the burden of property management, then this may be the best option for you.
Selling The Property
Selling the property may be a somewhat more complicated issue as a result of the taxes that may have to be paid as well as the added emotional difficulty of parting with the property. However, it can often be the quickest way to gather funds that you may need for the future.
Potentially the biggest question mark over this decision is what it will mean for your taxes. The first tax you are likely to encounter is inheritance tax, the standard rate of which is 40%. Depending on the value of the entire estate, however, you may not have to pay it for the first £325,000.
For example, if the property you have inherited is valued at £325,000 and the other assets take the total value to £400,000, you will only have to pay an inheritance tax on the additional £75,000 (£30,000).
The other tax to be aware of is Capital Gains Tax. While you do not have to pay this when you sell your home, you do have to pay it when you sell a property that is not your main residence.
Once the property’s value has been decided and you sell it, you pay Capital Gains Tax on any profit you make. To clarify, you will only pay the tax on the profit, not the total sum. For example, if you inherit a house valued at £400,000 and you sell it for £400,000, you will not have to pay CGT. If you sell the property for £500,000, however, you will have to pay the tax on the £100,000 profit.
The amount you pay is decided by your tax band.
If your intention is to make a profit and plan on renovating the property before selling, ensure that the finances work in your favour. If you are simply looking to sell the home as quickly as you can, Spring are on hand to help out. We are experts in probate & property solutions and our services guarantee you a sale with the money in your account in as little as seven days. For more information on how we can buy your probate property with ease, speed and certainty, get in touch with us via email at firstname.lastname@example.org or on 020 8629 7877.
Who is responsible for a mortgage after a death?
Typically, the responsibility of a mortgage and property management falls to the executor of the will unless another beneficiary is named.
When is probate needed to sell a property?
If the deceased party was the sole owner of the property, probate will need to be granted before it is sold.