Inherited property: Considering your options

For those who’ve inherited property, it can be an emotionally charged experience, often following the loss of a loved one. For many, it’s a time when practical decisions about the future of the property must be made alongside personal grief.

While inheritance rules and tax laws vary widely around the world, here we look at UK property inheritance. Whether you live in the UK or have inherited a UK-based property from overseas, understanding the legal, tax, and practical considerations in the UK is key to making informed choices.

Broadly, there are three main routes with inherited property in the UK: selling, renting, or keeping it.

Each has different implications, and the right choice will depend on your circumstances, goals, and, if others are involved, what you agree upon collectively.

Who’s Involved?

In many cases, multiple parties inherit a property together, such as siblings, or it could be a share of a home where another owner still lives.

If another person remains in the property, their right to stay may be set out in the will. It’s important to seek legal advice from a solicitor to clarify your position and responsibilities under local law.

For UK properties with existing tenants, you will take on the legal obligations of a landlord under UK rental law.

This includes complying with tenancy agreements and meeting safety and maintenance requirements.

If you inherit a property jointly with others, open discussions about priorities are essential. Sentimental value often plays a role, but practical and financial factors should also be considered to avoid disputes.

Selling an Inherited Property in the UK

Under current UK tax rules, Capital Gains Tax (CGT) is not charged at the point of inheritance. The property’s value is reset to its market value as of the date of death.

CGT may become payable if you later sell the property, based on any increase in value from that baseline. The exact amount depends on your circumstances and prevailing UK tax rules at the time of sale. These can change, so seek professional tax advice.

If you inherit a property you do not intend to live in, selling and reinvesting the proceeds might be an option.

Some people choose to invest in different assets, such as smaller rental properties, although the suitability of this will depend on individual circumstances and market conditions.

Monitoring the UK property market before making a decision is crucial. If market conditions are unfavourable, temporarily renting the property could be considered, but you should weigh up the tax implications and landlord responsibilities.

Letting an Inherited UK Property

If you decide to rent out the property, guidance from a UK-based financial adviser and property tax specialist is strongly recommended. They can help you understand your tax position, including Income Tax on rental profits and allowable deductions.

First-time landlords should familiarise themselves with UK legal requirements.

For example:

• Annual gas safety checks are mandatory.
• Depending on the property and local council rules, you may need a House in Multiple Occupation (HMO) licence.
• You’ll need specialist landlord insurance.

Decide whether you will find tenants and manage the property yourself or hire a letting agent. Management services come at a cost but can save significant time and effort.

Keeping an Inherited Property

If you keep the property as a second home, it’s important to notify HMRC, as Principal Private Residence Relief applies only to your main residence. CGT may be payable on future sale.

Owning an additional UK property involves ongoing costs, such as maintenance, insurance, and potentially future Inheritance Tax (IHT) for your heirs, depending on prevailing tax rules at the time.

Unsure What to Do?

Dealing with a UK property inheritance can be complex, especially at an emotional time. Professional advice from financial advisers, tax specialists, and solicitors will help you understand the legal, tax, and practical implications.

This article provides a general overview of considerations for inheriting property in the UK and should not be relied upon as legal advice. Rules differ in other countries, and even within the UK, there are variations between England, Wales, Scotland, and Northern Ireland. We strongly recommend obtaining advice tailored to your specific circumstances.

If you are looking to reinvest in a more suitable property or need guidance on your next steps, our team can help. Contact us for a no-obligation discussion about our services.