Inheriting a property can provoke a wide range of emotions, including grief that you’ve lost someone you loved, gratitude that you’ve received such a generous gift, and worries about what you should do with it.
Working out what to do with a home you’ve inherited can feel like a big responsibility, but essentially you have three main options – either to sell it, rent it out, or move into it yourself.
There are several important things to consider whichever route you decide to take, and you’ll also need to factor in the tax implications too. Here, we explain everything you need to know about your options if you’ve inherited a property.
When will I get the keys to the property?
If someone leaves you a property in their will, it isn’t the case that you can simply pick up the keys and let yourself in.
Before you can do anything with the property that’s been left to you, the probate process will need to have been carried out, which can take several months. This includes paying bills and Inheritance Tax if applicable, as well as passing on money or gifts that have been left in the will. Only the executor or executors named in the will can apply for probate. You can find out more about how the probate process works in our guide What is probate?
Only once probate is completed, it’s at this point that you should be able to take ownership of the property. It’s a good idea to register yourself as the new owner with the Land Registry at this stage, although you’re not legally required to do this until you come to sell it, or unless you plan to take out a mortgage on the property.
Selling an inherited property
If you already own your own home, and don’t want the hassle of becoming a landlord, you may decide you want to sell your inherited property as soon as possible to provide yourself with a cash lump sum.
Once the property is sold and you’ve paid any tax required on the proceeds, you’ll need to think about what to do with this money. Options might include topping up your pension, investing in tax-efficient individual savings accounts (ISAs). Learn more in our article What should I do with an inheritance?
Tax implications
If you decide to sell a property you’ve inherited, and you haven’t lived in it as your main home, then you’ll have to pay Capital Gains Tax (CGT) on any profit that exceeds your CGT allowance when it is sold.
In the current 2024/25 tax year, this allowance is £3,000. If you’re a basic rate taxpayer and your income is £50,270 or less, you’ll pay Capital Gains Tax at a rate of 18% when selling a rental property, rising to 24% if you’re a higher rate taxpayer with an income of £50,271 or more. However, there is widespread speculation that CGT will be overhauled in Labour’s first Budget on October 30, with some suggesting that CGT rates will be aligned with income tax rates. This would result in gains being taxed as high as 45%.
No-one knows for certain what will be announced by the Chancellor, but it is worth understanding what your potential tax position might be if significant changes are announced, as this could influence your decision to sell.
As well as considering the tax implications of selling an inherited property, it’s also worth thinking about the impact of suddenly having a large lump sum in your bank account. If you are currently claiming benefits, for example, this could affect the amount you can claim. You can find out more about this in our article How lump sum payments and savings can affect your benefits.
The good news is that there are several organisations which can advise you about how a lump sum payment could affect your benefits, if you’re claiming them. For example, charity Turn2us can assess your eligibility for benefits through its Turn2us benefits calculator or if you’d rather speak to someone, you can contact them by phone on 0808 802 2000. The site Entitledto.co.uk also has a free benefits calculator which you can use to work out whether you qualify for financial support.
Renting out an inherited property
If you want to use the property you’ve inherited to provide you with a regular income, you might decide that renting it out is the best option for you.
There are several things you’ll need to sort out first, however, including the following:
- Obtain an up to date Energy Performance Certificate if there isn’t already one
- Book an Electrical Installation Condition Report
- Provide a Gas Safety Certificate and evidence of working smoke and carbon monoxide alarms
- Gather Tenancy Deposit Scheme (TPS) information. This should outline which scheme you are holding your tenant’s deposit with
- Compile a documented inventory with photos. This isn’t legally required but when the tenancy comes to an end it will help you decide whether the general wear and tear that has happened during the tenancy is reasonable or not
- Sort out a Tenancy Agreement. While there is no legal requirement to have a tenancy agreement, having one could save you a lot of time and stress. The government has a model agreement you can use, or if you are using a managing agent, they may have their own.
It may be that the property is already let out to a tenant when you take ownership of it. If this is the case, hopefully the will of the person who’s died should make clear whether or not the tenant has rights to stay in the property, or whether they need to leave once you become the official owner.
If it doesn’t, then you will need to liaise with the tenant and agree how long you are willing to let them stay for, and under what terms.
If the property you’ve inherited does have a tenant in situ, then you as their landlord will need to ensure the property is kept well-maintained and that it meets all the relevant safety regulations. You can find out more about your obligations in our article What are my responsibilities as a landlord?
Tax implications
If you’re planning to rent out a property you’ve inherited, then bear in mind that any income you make from rent will be subject to income tax, if that income pushes you over your personal allowance.
The personal allowance is the amount of income you can earn each year free of tax, and for the 2024/25 tax year is £12,570. However, you should be able to deduct most expenses from the payable amount, as long as you have evidence which shows the money you’ve spent has been used solely for the purpose of renting and maintaining the property. These include insurance policies, the costs of general maintenance and repairs (but not improvements), and various legal costs. You can find out more about income tax for landlords and how exactly these allowances work at GOV.uk.
Moving into the property yourself
If you’re currently renting a property, moving into your inherited property, provided it’s in a location where you want to live and is the right size for your needs, is likely to be a no brainer.
However, in reality this won’t always be practical, as the property may be a long way from where you work, or your friends and family. It may also not be suitable, for example, it may be too small or too large for you, need costly improvements, or the outside space might not be what you’re looking for.
There may also be other people currently living with you too who might not be happy about leaving your current home, and therefore don’t want to move to the inherited property. All these factors can play an important part in your decision whether or not to move into the home that’s been left to you, so it’s rarely a straightforward move.
If you do decide to move into the property you’ve inherited, and will be leaving a property that you own, then you’ll need to work out whether you plan to sell this or let it out.
Tax implications
If you plan to move into a property you’ve inherited, then the only tax implications you’ll need to consider will arise from what you plan to do with the home you currently own.
For example, if you plan to sell your existing home, under current rules you shouldn’t have to pay Capital Gains Tax (CGT) on any profit that exceeds your CGT allowance when it is sold as you’ve lived in it as your main residence.
However, if you plan to hang onto it and rent it out, any income you make from rent will be subject to income tax, if that income exceeds your personal allowance.
Inheriting a property with a mortgage
It may be that the property you’ve been left has an outstanding mortgage on it, in which case you’ll inherit this too.
This may make your decision what to do with the property easier, as if you can’t manage the repayments on top of your other outgoings, you may have no option but to sell it. You should let the mortgage company know as soon as possible that you’ve inherited the property. They may be able to give you a bit of leeway with payments if you’re going to struggle to pay them while the property is sold.
If you can’t make the payments and you don’t let the mortgage company know that you’re finding it difficult to pay them, there’s a risk that they will repossess the property and it will be sold off to repay the mortgage.
If you’re thinking about letting out part or all of your property for a short period to cover mortgage costs, it’s vital that you check your mortgage agreement, as many lenders have terms and conditions that prohibit you from letting out your home without their permission. If you breach these terms, there’s a risk that you could invalidate your mortgage. In the worst-case scenario, this could see you incur a hefty fine.
However, your lender might offer ‘consent to let’, which is essentially a short-term solution. This allows you to let your property for a set period, usually on a residential basis (i.e. to a single person for six months). Bear in mind that every lender approaches this differently, but it’s becoming increasingly common for lenders to include Airbnb as an acceptable way of renting your property in their consent to let criteria, so it’s worth asking if they will allow this.
You may decide to let the property out longer term, in which case you’ll have to arrange a new buy-to-let mortgage. Find out how to go about this in our article Can you change a residential mortgage to a buy to let mortgage?
Want to speak to a mortgage advisor? Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 1,250 reviews.
A final thought…
Before you make any decisions about what to do with a property you’ve inherited, it’s worth carefully weighing up the pros and cons of the options you have, and the longer-term impact they could have on your financial situation.
The last thing the person who left you the property will want is for their gift to cause you any angst, for example if you suddenly find yourself hit with a tax bill you weren’t expecting, so if you’re not sure of the best course of action to take, you may want to consider seeking professional financial advice.
You can find a local financial advisor on VouchedFor or Unbiased, or for more information, check out our guide on How to find the right financial advisor for you.
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