Selling an Inherited Property

Inheriting a property can be both a gift and a challenge and can be extremely overwhelming. If you come to the decision that you want to sell the property there are a number of steps you need to take. Understanding the steps will enable you to navigate the process strategically. In this article, we will delve into exactly how to sell an inherited property, what you need to know about implications such as inheritance tax and ways to potentially minimise this financial burden.

How to Sell a Property That’s Been Inherited:

Selling an inherited property involves a distinct set of actions that need to be completed in order:

Steps to selling an inherited property:

• The will is consulted – if there is a will, it may be located with a solicitor. The executor is named in the will.
• The Executor applies for probate – £273 for an estate of £5,000 – which can take around 12 weeks
• A solicitor is appointed – to help with any issues around the title deeds
• The property is valued – Get a valuation from several agents to ensure the market rate achieved
• The property is prepared for sale – This may involve some maintenance or cosmetic improvements
• The Property is placed on the market – This can be done before the probate is granted, but the sale cannot be completed until the probate documents are issued
• The sale is completed – Although if a low offer is accepted by the executor that is not considered to be market rate, the beneficiaries can challenge the sale
• Funds are distributed – Inheritance tax and other debts are paid and money distributed

Applying for probate:

The role of the executor is to manage the estate and execute the deceased’s wishes, including selling property during probate. Once the executor consults the will of the deceased person to understand how the deceased person wants their estate and possessions to be distributed, they will look to apply for probate (if there is a will) or letters of administration (if there is no will). If there is no appointed executor, the closest living relative of the deceased person will apply for probate.

If there is no will, the estate is shared out according to intestacy rules, including being in a married or civil partnership at the time of death or, if there is no surviving partner, the children of the deceased person will inherit the estate, which is divided equally if there are two or more children.

If the property is jointly owned, probate will not be applied for, and instead, ownership will transfer to the surviving owner.

Probate can take up to 12 weeks, or longer if any issues arise. Selling a house without probate being granted is challenging as a sale of the property of a deceased person cannot be completed without a probate document.

Selling the property:

Once probate is granted, the sale of the property can now be progressed. The executor will now appoint a solicitor to help with the legal aspects of selling the property and address any issues around title deeds of the property.

The next step is to get a valuation for the property and prepare it for sale. This will usually involve consulting local estate agents to understand the market value of the property and making any repairs that will prepare the property for sale and help to achieve the best possible sale price. How quickly you want to sell the property, the costs of work and market conditions may all influence whether you decide to make repairs or sell as-is. It may be that you consider exploring other selling options such as auction. 

Selling through an estate agent

Pros – Can achieve a higher price, has a list of potential buyers

Cons – Can take longer, higher fees

Selling through auction

Pros – Fast completion, reserve figure can be agreed

Cons – High fees, no guarantee of sale

Selling through a home buying company

Pros – Faster sale, no contract

Cons – Lower price achieved, not all companies are reputable

The property can legally be placed on the market before probate is granted, however, the sale cannot complete until probate is granted, so consider this when choosing a method for selling the property. The executor is responsible for ensuring the property is sold for market value and any beneficiaries can challenge the sale if an offer is accepted that is considered below market value.

Tax Considerations:

Once the property is sold, the executor will be responsible for paying outstanding debt, such as any mortgage amount on the property and inheritance tax. Understanding inheritance tax is pivotal when dealing with an inherited property. Inheritance tax is a tax levied on the estate of a deceased person. In the case of a probate sale, it is the responsibility of the executor to ensure inheritance tax is paid accordingly.  Inheritance tax is due to be paid within 6 months of the estate owner’s death (via an IHT400 form), therefore if the property takes longer than this to sell, penalties may be incurred. 

The amount of inheritance tax on an inherited property depends on factors like the property’s value, the relationship between the deceased and beneficiary, and any available exemptions. Professional advice is crucial for accurate calculations. There is a tax-free allowance of up to £350,000, or £500,000 if the property is left to grandchildren. Any amount over this is subject to 40% inheritance tax.

Mitigation strategies may include gifting, placing the property into a trust, or exploring reliefs and exemptions available. In certain situations, the family home is exempt from inheritance tax. Conditions often include the property being the main residence, and the relationship between the deceased and the inheritor. Exploring these exemptions can significantly impact the financial outcome of the inheritance, providing relief during what can be an emotionally challenging time.

When you sell the inherited property, if the value of the property has increased from the point at which it was valued for inheritance tax purposes, you will have to pay Capital Gains Tax. This may happen if you sell the property a number of years after inheriting it or if you add value to it by doing improvement works before sale (You can deduct costs such as estate agents, auctioneers’ and solicitors’ fees and adding an extension to the property). You will also avoid paying Capital Gains Tax if the property was your main home, because you will be entitled to “private residence relief”. The tax rate payable depends on your income level: 18% for basic rate taxpayers and 28% for higher rate taxpayers for properties; 10% and 20% for other assets. The Annual Exempt Amount was reduced from £12,300 to £6,000 in 2023 and then to £3,000 in April 2024. Couples can combine their allowances, which essentially doubles their tax-free threshold. Capital Gains Tax is due 60 days from the date of the completed sale.

Other things to consider:

Remember, the cost of probate, conveyancers and estate agents fees are not the only costs to factor in, when you inherit a property. While you are waiting for probate to be granted or for the house to be sold, there may also be ongoing costs such as insurance, mortgage payments, utilities and council tax. You may also need to clear or move furniture, using a removal company and pay for a valid Energy Performance Certificate or EPC, which will cost around £100 and is a requirement to sell a property. 

Conclusion:

Selling an inherited property is a journey laden with emotional and financial considerations. By understanding the selling process, including inheritance tax implications, you can ensure a smoother transition. Transparency and clear communication with heirs are key to a smooth process that will ease the burden on those inheriting the property. If you looking to sell an inherited property, consider seeking professional advice to help you fully grasp the specific tax implications in your situation.