Most people who inherit property do so after the death of a parent. It’s a difficult time, made more so by all the paperwork and admin which may feel like a bit of a minefield. If you’ve inherited a property in south west London, this is likely to be a substantial asset – the average property price in Wandsworth over the last year is just over £900,000, while in nearby Balham, the average property price is just over £950,000.
When you inherit property, you need to understand the inheritance tax implications. You’ll have decisions to make about the property too – whether to sell, rent out or live there yourself. And if you have siblings or fellow beneficiaries, you’ll need to think this through together. To help you get to grips with the process, we answer the top questions about selling an inherited property.
Steps to selling an inherited property To get a better idea of the process involved in selling inherited property, here are the six key steps:
Read/consult the will – The first step is the reading of the will to find out how the property, finances and possessions have been distributed. If there is no will, the rules of intestacy apply to decide who inherits the property and possessions.
Apply for probate – Next, you will need to apply for probate, which provides you with the authority to sell the property. This involves completing a series of forms and it can take several months to receive grant of probate.
Pay inheritance tax – If the person’s estate is valued at more than £325,000 when they pass away, inheritance tax will apply. However, there is a Residence Nil Rate Band (RNRB) which increases the tax-free threshold to £500,000 if the property is left to children or grandchildren. The current inheritance tax rate is 40% and it is advisable to speak to an inheritance tax specialist to help ensure you do not pay too much inheritance tax. You will need to complete a IHT400 and obtain a property valuation.
Prepare the property for sale and get it valued – The next step is to prepare the property for sale and getting an estate agent to provide a valuation of the property. How long the property will take to sell can vary and the average time is around 14 weeks.
Sell the property – Once you receive an offer that you want to accept, you are close to completing the process. As long as there are no issues such as the chain falling through or serious problems uncovered surveys, the property sale will go through, with the solicitor transferring the money to you.
Pay capital gains tax (CGT) – In addition to paying inheritance tax, you may also need to pay capital gains tax. This only applies if the property value has increased between the initial valuation for inheritance tax purposes and the sale price.
You need to begin by locating the will of the person who has died, because this will include all the key information about their wishes for their estate. It will also name the executor – the person appointed to ensure these wishes are carried out, along with the people who will benefit from the estate.
If the deceased person did not make a will, the home will pass to close relatives based on intestacy rules. The next of kin will be identified by determining who the closest relative of the deceased is.
Once the beneficiaries of the will or estate have been confirmed, you can start the process of applying for probate.
Applying for probate is the legal term for the process of asking to deal with someone’s assets after they die. You may decide to appoint a solicitor to manage your probate application, or you can do it online using the gov.uk website. The fee is currently £273. Before you can apply for probate, you must estimate the value of the estate to work out whether there is inheritance tax to pay.
It depends on your relationship to the deceased. If you jointly owned the assets and are the surviving spouse, there is no requirement to apply for probate. Other relatives will need to apply for probate.
Executors of the will can apply for probate. In the case where there is no will left by the deceased, the closest living relative can apply for probate.
When someone dies, inheritance tax at a rate of 40% may need to be paid on the value of their estate above certain thresholds. Inheritance tax applies on the estate of someone who has died, which includes any property, money and possessions.
Whether inheritance tax applies and what the threshold amount is depends on the relationship of the beneficiary:
– If the estate is inherited by a spouse or civil partner there is no inheritance tax to pay.
– if a child or grandchild is the beneficiary, the threshold is £500,000.
– In other circumstances, the threshold is £325,000.
– Unused thresholds can be passed from one spouse to another.
The tax is only charged on the part of the estate that is over the threshold. This means if the tax-free threshold is £325,000 and the estate is worth £400,000, the tax will only be applied to the £75,000.
There are some circumstances where you may be liable for less inheritance tax or none at all:
There is no inheritance tax on property that is left to the surviving spouse or civil partner. If the tax-free allowance is not used when the first spouse or civil partner passes away, any unused relief can be transferred to the surviving spouse or civil partner.
The inheritance tax threshold is raised to £500,000 for property passing onto children or grandchildren. This is known as the Residence Nil Rate Band and you won’t have to pay any tax if the property value falls below the threshold.
If the deceased person has chosen to leave at least 10% of the net estate to charity or community amateur sports club, the inheritance tax is reduced to 36%.
To work out how much inheritance tax is owed, you should add up the value all the deceased person’s assets including their home, savings, jewellery, furniture, death benefits and cars. Read more about inheritance tax on the gov.uk website.
You need to include the current value of the property so you should seek three estate agent valuations.
Inheritance tax should be paid within six months of the person’s death. To pay your inheritance tax, you will firstly need to obtain a valuation of the property, which will be the open market value. You will also need to complete a IHT400 form and make the required payment through online bank accounts, telephone banking or by cheque.
While you can market the property straight away, you can’t exchange contracts until you have been granted probate to prove you are the legal owner – so you or your agent needs to make the position clear to interested buyers. The average time the probate process takes in the UK is currently around four months.
Staging a property to sell will always show it off to its best and help you attract buyers and higher offers. In a desirable location, such as south west London, you may not need to carry out a full-scale refurb to entice buyers. It is worth discussing this with your estate agent first. If the home is quite dated, think about repainting it and removing old carpets and fittings as well as sprucing put the exterior to give it kerb appeal. You will need to remove all belongings from the home before you sell. A clearance company can do this for you, if the task feels too big to manage.
If there is still a loan on the property, and no life insurance policy to pay it off, your first job should be to talk to your mortgage lender to find out about the terms of the mortgage. Some lenders may agree to freeze payments until probate is granted. Once you sell the property, will pay off the mortgage and keep the balance.
What happens if I inherit a property with siblings and one of them doesn’t want to sell?
When you and your siblings inherit jointly, you’ll need to come to an agreement about what to do with the property. If for example, one sibling wishes to live in the home, they will need to buy the others out. If you wish to sell but another sibling doesn’t, things can become difficult and you should take legal advice. If you can’t agree, it is possible to force a sale by getting a county court judgement.
When you inherit the property, you will pay inheritance tax. If you hold on to it for any length of time, and it has risen in value by the time you sell, capital gains tax may be payable. You may be fully or partially exempt if you lived in the property as your main residence – get advice from an accountant about this. Inheritance is not regarded as income, so income tax does not apply.
If you’re thinking of selling an inherited property in Wandsworth, Tooting or Balham, talk to us. With our knowledge of the local market and experience of selling inherited homes in this area, we can advise you about the best way forward. Book a free market appraisal of the property today.