If you’ve just inherited a house or equity in one, the good news is that it’s a valuable asset in your financial portfolio, whether you choose to sell it or keep it. However, you’ll also have some financial, legal and administrative processes ahead of you, which depend on:
- Your legal relationship with the inherited property
- How much of the property you’ve inherited (i.e., all of it or shares in it)
- Whether the house has a mortgage
- Whether you’d like to sell or keep the property
- The house’s location (in the UK or abroad)
- Any outstanding debts secured against the property
In this guide, we’ll take you over the processes you might need to go through and how the considerations above can influence them.
The legal process of inheriting a house
If you have a legal claim to the property, you may still need to go through the following steps before you can benefit from the house, such as by moving in, renting it out, or selling it. Here’s what’s involved:
1. Establishing your legal relationship with the house.
A will, in which you’re named as a beneficiary, confirms your legal right to the estate (i.e., everything owned by the deceased that’s left behind, including their property, cash, and assets) after it’s been administered.
A will can also name the executor, who’s responsible for sorting out the deceased’s property. Importantly, the executor doesn’t have to be a beneficiary.
If the deceased didn’t leave a will, their next of kin can apply for a grant of letters of administration. This document proves their legal right to deal with the estate. However, since there’s no will specifying each beneficiary’s share, the law determines each party’s inheritance.
2. Checking if probate is needed
Probate is the process of ensuring the deceased’s final wishes are carried out as outlined in their will. Beneficiaries may need to go through this legal process to get access to the deceased’s estate. The entire process of probate, from initially applying for it to administering and finalising the estate, generally takes around 9-12 months.
You can find out if you’ll need probate by contacting the financial organisations used by the deceased person (such as their bank or mortgage company). Each institution has its own set of rules. In general, probate might not be required if the deceased:
- Owned land or property (such as a house) as a ‘joint tenant’ with one or more individuals. In this case, the asset automatically passes to the surviving owners.
- Only had savings, and no other assets.
- Owned shares or money with one or more individuals. In this case, the shares or money automatically pass to the surviving owners, unless the parties had agreed otherwise.
If you’re dealing with a complex estate, and aren’t sure if probate is required, you can contact:
3. Who can apply for probate?
Applying for probate is different, depending on whether the deceased left a will or not:
- If the deceased left a will, the person named as the executor can apply for probate. If the will names more than one executor, they’ll need to mutually agree on who submits the application for probate. Up to four people can be named as executors on the application. Additionally:
If an executor is unable to apply because of a mental health condition or impairment, or they’ve passed away, you can check the will to see if a substitute has been named.
If the conditions for substitution are met, the substitute can apply alongside the other executors. And if there’s no named substitute but there are other named executors who can apply, they can do so immediately.
If you’re an executor and don’t want to apply for probate, learn about your options here.
If there are no executors and no substitutes, a beneficiary of the will can apply for probate.
- Appoint someone else to administer the property on your behalf by giving them ‘power of attorney’. This allows the individual to apply to administer the estate and for probate on your behalf. You’ll still have the option to take back your power of attorney later on by applying for probate yourself.You’ll need to fill in form PA12 to transfer power of attorney, and you can do so for up to 4 people to have ‘power of attorney’. Alternatively, you can use a signed enduring power of attorney (EPA) or registered lasting power of attorney (LPA).
- If the deceased didn’t leave a will, the closest living relative (known as the most ‘entitled’ person) can apply to become the property’s administrator.
The most entitled person is usually the spouse or civil partner, followed by any children aged 18 or over. Spouses and civil partners who were separated and children who are legally adopted still qualify to apply to be the estate’s administrator. However, stepchildren cannot.
If there’s no living spouse, civil partner, or children, you can use the inheritance calculator to work out the closest relative and who’ll inherit the assets.
If you’re the most entitled person but don’t want to apply for probate, you have the following options:
- Appoint someone else to administer the property on your behalf by giving them ‘power of attorney’. This allows the individual to apply to administer the estate and for probate on your behalf. You’ll still have the option to take back your power of attorney later on by applying for probate yourself.You’ll need to fill in form PA12 to transfer power of attorney, and you can do so for up to 4 people to have ‘power of attorney’. Alternatively, you can use a signed enduring power of attorney (EPA) or registered lasting power of attorney (LPA).
- If you’re the spouse or civil partner of the deceased person, and they have children, you can fill in form PA16.
Doing so means:
4. Applying for probate: pre-requisites and process
Once you’ve confirmed that probate is needed and checked who can apply, you’ll need to work out if inheritance tax is due on the estate—and if so, how much.
Pre-requisites
The estate’s value needs to be estimated to determine if inheritance tax is due, as it normally doesn’t apply to properties valued below £325,000. Additionally, inheritance tax may also not apply if the deceased left everything above the £325,000 threshold to their spouse, civil partner, a charity, or a community amateur sports club.
Note: if the deceased was a widow or they’re giving the house away to their children, the tax threshold might be higher.
To estimate the estate’s total value, you’ll need to account for:
- The combined value of the deceased’s assets (i.e., anything they owned) on the day they passed away.
- The value of any trusts in which the deceased had beneficial interest.
- Gifts the deceased gave (e.g., cash or valuable assets) in the 7 years before they passed away
You only need an estimate of the estate’s value to determine if inheritance tax is due, which you can do using the inheritance tax calculator. Alternatively, you can work out the estimated value yourself. If the estate’s estimated value exceeds the threshold for inheritance tax, you’ll need accurate valuations to calculate the inheritance tax owed on the estate. Learn more about calculating the estate’s value here.
Note: If you’re dealing with a complex estate and are unsure if inheritance tax applies (or how much), it might be worth consulting a financial adviser.
You’ll also need the following to apply for probate:
Applying for probate
If inheritance tax applies to the property you inherited, you’ll need to have paid the tax and wait for HMRC to send you a code via letter before applying for probate.
You can apply for probate:
- Online, using the UK government’s online service for probate.
- By post, by filling in application form PA1P if the deceased left a will. If they didn’t leave a will, you’ll need to fill in application form PA1A. Paper applications take longer to process than online ones, so the UK government recommends applying online if you can.
- Using a probate practitioner (such as a solicitor) to apply for you. Money Helper has a comprehensive guide on when to use a probate specialist that you might find helpful.
5. Transfer of ownership
After probate is complete and the will has been administered, the next step is to transfer the house’s ownership. This process differs depending on how the property is owned. You can find out the details about the house’s ownership and registration by:
- Searching for it on the Land Registry website. The registry lets you access important information about a registered property, including its title, the name it's registered under, and the ownership status (i.e., if it was solely owned by the deceased, or jointly with another person). You should be able to download documentation containing this information from the Land Registry’s website. Jointly owned properties will be further distinguished in the document as ‘joint tenant’ or ‘tenants in common’; this status makes a difference to who inherits the property.
- Locating the physical deed, which you’ll need to do for unregistered properties since they won’t appear on the Land Registry website. The deed is typically located in the deceased’s property, with other important documents such as their last will. If you can’t find it there, you might want to ask their bank, solicitor, or other relatives.
The beneficiaries have the option to register their ownership at the Land Registry, which provides proof of ownership. This proof is helpful for any future dealings with the property, and it’s necessary if you plan to sell or mortgage it.
Now, depending on the property’s ownership, here’s an overview of the process for transferring ownership:
- Solely owned property, i.e., if the house is only owned by the deceased. In this case, transferring ownership to the beneficiaries is relatively straightforward; the estate’s executor or administrator needs to fill out an‘Assent’ document and submit it to the Land Registry.
The Land Registry will also require confirmation that the administrator or executor has the legal authority to administer the property, in the form of a ‘grant of representation’. If there’s a valid will, this is a ‘grant of probate’ authority; otherwise, a ‘grant of letters of administration’ is needed.The Land Registry will transfer the property into the beneficiary’s name after the Assent is approved. - For ‘joint tenants’, i.e., the property is owned equally by two people, ownership is automatically transferred to the other owner (if they’re alive) under the Right of Survivorship. The executor or administrator is responsible for filling in and submitting a Deceased Joint Proprietor form and a death certificate to the Land Registry. This process removes the deceased owner’s name from the deed, so the other tenant becomes the property’s sole owner.
- For ‘tenants in common’, i.e., each party owns a specific percentage of the property, the deceased’s share of the property is dealt with in accordance with the will (or according to Intestacy laws, if there’s no will). The Land Registry doesn’t require a grant of representation in this case unless the property is being sold.
Responsibilities during the administration period: debts, taxes, and mortgage payments
The administration period is between the day after the deceased passed away and the date that all their assets have been passed on to beneficiaries. In other words, it’s the time in which the deceased person’s affairs are settled by the executor or administrator.
These affairs may include paying any owed debts (from the deceased’s estate), taxes, and any required mortgage payments.
1. Debts
If the deceased had debts, their estate becomes liable for them. This means that the executor (or administrator, if there’s no will) is responsible for paying off the debts with the estate. The process of paying off debts from the estate takes place before assets are distributed to the beneficiaries. If the money and assets in the estate can’t cover all the debts, they’re paid in priority order until they run out, and any remaining debts are usually written off.
Joint debts and secured debts are usually handled differently. Money Helper has a comprehensive guide for dealing with the debts of someone who has died that you might find helpful.
2. Taxes
If you’re inheriting a house (or a share of one), here’s a quick overview of the taxes that may apply:
- Inheritance tax. Inheritance tax normally applies to estates valued above £325,000. It may not apply above this threshold in certain circumstances, depending on who the deceased left their assets to. In the UK, the standard rate of inheritance tax is 40%. It’s payable on the total value of the estate, which includes both property and any other assets.
Inheritance tax is paid from the deceased’s estate. However, beneficiaries can choose to pay it themselves to avoid selling equity in the house/property. - Stamp duty land tax (SDLT). SDLT is a property tax in the UK that’s applicable to the purchase of property or land. SDLT generally doesn’t apply to property left to you in a will (instead, inheritance tax applies if the property’s worth exceeds the threshold).
However, if the house has an outstanding mortgage and you decide to keep it, SDLT may apply to the remaining mortgage amount. - Capital gains tax (CGT). CGT may apply if you sell an inherited property that isn’t your primary residence. As the name suggests, CGT applies to the profit you make on the sale, not on the house itself.
HMRC will calculate which income tax you fall into for the year by adding the profit you make on the sale to your personal income. You’re then required to pay CGT on any taxable profit made on the sale at the rate for your tax band.
3. Mortgage payments
If you inherit a house with a mortgage, you (and any other beneficiaries) are responsible for making the mortgage payments, even if none of you live at the property. Some mortgage lenders offer a “grace period,” after the original borrower passes away, during which the mortgage payments are paused until probate is complete.
After finding out that you’re inheriting a house with a mortgage, it’s usually best to:
- Get in touch with the mortgage lender, informing them that the deceased has passed away and that you’re inheriting the property. This is a good opportunity to ask about any grace periods.
- Check the mortgage terms for the lender; these terms may specify what happens when the mortgage owner passes away and how to handle repayments moving forward.
Sometimes, the deceased’s life insurance policy may cover the remaining cost of the mortgage. Their will may also outline how to deal with the unpaid mortgage, such as by making the repayment using cash or other assets they left behind.
If the deceased’s last will does specify using their estate’s assets or cash, to pay off the mortgage, the executors are responsible for doing so. Otherwise, the new owners are responsible for the mortgage payments.
Some other options for handling the mortgage include:
- Taking out a new mortgage on the property in your own name.
- Selling the property off and using a portion of the funds to pay off the remaining mortgage. Keep in mind that you may have to pay capital gains tax if you choose to sell the property.
I inherited a house abroad. What do I need to know?
If you’ve inherited property abroad, it may or may not be subject to the same criteria for inheritance tax as for local assets, depending on the deceased person’s official “domicile”, or their place of permanent residence.
If the deceased’s domicile status isn’t the UK, only their UK assets are normally subject to the criteria for inheritance tax, and foreign assets are excluded. If they are a permanent resident of the UK, however, then their foreign assets are also considered part of the estate. This means they’re factored into the £325,000 threshold for inheritance tax.
What do I need to know about selling an inherited house?
The process of selling an inherited property is quite similar to any other property. For an inherited house, you may need to keep the following in mind specifically:
- Probate. If probate is required for the inherited house, you can’t sell the property until the process is complete. However, if you’re a joint tenant and therefore directly gain ownership, you can start the process of selling the house immediately.
- Inheritance tax. If inheritance tax applies to the house, you’ll need to pay it before selling it.
- Capital gains tax. If the inherited house’s value has increased at the time of sale, from the time it was valued for inheritance tax, you may need to pay CGT on the taxable profit.
- Registered ownership. You’ll need to register your ownership at the Land Registry before you can sell the house.
Other than these considerations, the general selling process is usually the same as for any other house.
I just sold the house I inherited. What’s next?
If you’ve sold the house you inherited, a lump sum of cash is probably headed your way (if it hasn’t come in already).
However, even if you’re the sole owner of the house, you won’t usually receive the exact sale amount. Costs such as a solicitor’s/real estate agent’s fees, any applicable taxes, and any outstanding mortgage repayment may be deducted before you receive the funds.
Now, depending on your current financial situation, short and long-term financial goals, and risk appetite, you might have different ideas about what to do with the money. For example, some people might do one or more of the following:
- Save some of the cash for quick access, such as to build up an emergency fund or rainy day fund, or to put towards an upcoming expense (e.g., tuition fees, home improvement projects, etc.)
- Invest it in a rental property, which offers rental income and an asset that can be sold for a profit after a while (potentially, as property prices go both up and down).
- Save some in a tax-free savings product, such as pensions or Individual Savings Accounts (ISAs). Learn more about tax-free savings products and how much you can have in savings before paying tax in this guide.
- Invest in savings products that focus on maximising returns, such as fixed-rate savings accounts. These accounts lock your money away for a set period (known as a “term”) where it earns a fixed interest rate.
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Summary: I inherited a house. What’s next?
If you’ve just inherited a house, there may be a few steps before you can benefit from the property, such as by renting it out, moving into it, or selling it.
This may include finding and checking the will (and referring to Intestacy laws if there isn’t), going through probate (if required), and estimating the estate’s value to determine if inheritance tax is due. The estate then has to be managed, and the assets need to be distributed to the beneficiaries.
If you’re looking to sell an inherited property, the process of selling it is similar to any other house. However, you’ll need to first go through probate (if it’s required), pay any required taxes, and secure proof of ownership before proceeding with the sales process.
If you’re struggling with any of the official processes related to inheriting a house, it might be worth getting professional advice. A financial adviser can advise you on matters such as if inheritance tax is due, and how much, while a probate specialist can help you with the probate process and administering the estate.
