Everything You Need To Know About Inheriting Property In The UK
It’s never easy when a close relative dies. For most people, receiving their inheritance is a sad and drawn-out process, even when the rewards are generous. It is common for property owners to transfer ownership of their property to their next of kin when they died. Fortunately, this is usually a simple process, but it can also be a complex one if you don’t have someone to walk you through it. Receiving property from a deceased relative isn’t always as simple and straightforward as we would like.
If you have just inherited a property or you are expecting to in the future, or you’re just curious about what’s involved for your kids if you leave your property behind to them in your will, this guide tells you everything you need to know about property inheritance in the UK.
Is There A Will?
Whether the deceased has left a formal will that expresses their final wishes or not will determine the path that things take as the inheritance process unfolds. People inherit property all the time in the UK; it is one of the most common ways for property to change ownership. In fact, a significant percentage of British people will have to deal with inherited property or property left behind when a relative dies. If there is a will in place, then everything tends to go a lot smoother.
If there is a will, then whoever is designated as the executor will have to apple for probate. Probate is a judicial process that validates a will in the eyes of the law. The court will issue a ‘grant of probate’, allowing the executor of the will to gather together any assets outlined in the document. It also gives them permission to use the deceased’s assets to pay off any outstanding bills or other financial obligations.
If there isn’t a will in place or the will is disputed, things can be a bit more complicated. When someone dies without a will, it is known as ‘dying intestate’. In these circumstances, it is up to the next of kin to make an application to the court for a grant of administration. If the court approves this application, the next of kin will have the legal authority to deal with the estate. Ultimately, the law will decide how any inheritance is divided up amongst beneficiaries in the absence of a will.
Do I Pay Stamp Duty On Inherited Property
In most cases, no, you don’t need to pay stamp duty on an inherited property when you inherit it. However, there may be other taxes that need to be paid and you will have to pay them if the deceased owner’s estate hasn’t done so. If you do need to pay anything, you will be contacted by HMRC, who will provide you with details of what you need to pay and why.
If you are planning on selling the inherited property, you may need to pay Capital Gains Tax on the sale, unless the inherited property is your primary residence at the time of sale. After you inherit a second home, you will need to inform HMRC of which of your properties you want to designate as your main home. If you don’t notify HMRC of your decision and then proceed to sell one of the properties anyway, HMRC will decide which one qualifies as your primary residence.
Stamp Duty On Inherited Property
There are some circumstances in which people inheriting a property will have to pay a 3% Stamp Tax Land Duty surcharge. Usually, there is no need to pay any stamp duty when you are inheriting a property. However, there is an exception to this rule. If the beneficiary already owns a property, they will be liable for the 3% surcharge when they sell the property. It is complicated, so always take professional advice to ensure you know what to expect.
First Time Buyer Inherited Property
You should also be aware that if you inherit property, then you can no longer be considered a first-time buyer. Even if you have never bought a property before and the only property to your name is that which you have inherited, once you have inherited a property, you are officially a property owner. This applies even if you have only inherited a portion of a property or estate.
For some people, this has led to them being hit with unexpected charges when they are completing the purchase of a property. Let’s say that you are halfway through the process of purchasing a flat for yourself in Oxford. When you begin the process, this is your first property purchase, so you proceed under the assumption that you will be entitled to the usual tax breaks that apply to first-time buyers.
However, before you can complete the purchase of your new flat, your Great Aunt Dorothy dies unexpectedly, leaving behind a share in her haunted mansion. This means that when you finalize your purchase of the flat, you will no longer be a first-time buyer. As a result, you will need to pay the stamp duty land tax charge. This also applied if the property that you are inheriting is located overseas; it doesn’t have to be a UK property.
Joint Ownership and Inherited Property
There are a number of things that you need to think about when you are inheriting a property. Even if there is a will in place and everything proceeds relatively smoothly, there are plenty of things that can go wrong and many parts of the process that people are unprepared for. For example, if you have siblings who are also in line for some of the inheritance, then there are a number of things that you will have to arrange with them. Inherited properties are often divided up amongst beneficiaries, with each individual taking a stake in ownership. It can sometimes get nasty of not all parties agree on the way the estate has been divided.
Unless one or more of you decides to give up or sell their stake in the property, you will all be joint-owners of the property. Joint property owners can either be joint tenants or tenants in common. Joint tenants are tenants who are registered at the same time and on the same deed as owners of a property. This means that their ownership is the result of a single transaction and the joint tenants are behaving as a single-party. Under such an arrangement, if one of the joint tenants dies, then the other automatically gains their share of the property. It is possible to add new tenants to such an arrangement further down the line.
On the other hand, tenants in common might have different steaks in a property. For example, one might own X percentage of said property while the other owns Y percentage. Joint tenants have an equal stake to the property, but tenants in common can have radically different portions of ownership.
Inheriting A House With A Mortgage
It is not uncommon for an inherited property to have an outstanding mortgage on it. If the Property Owner dies while they still have an active mortgage on the property, then the mortgage is passed along with the property itself. That means that if you inherit a property that has an outstanding mortgage on it, you will have to assume responsibility for repayments.
In some cases, the deceased may have a life insurance policy that includes stipulations for covering the costs of an outstanding mortgage on a property that they leave an heir. But if such a policy is not in place or the policy does not pay out enough to cover the repayments then, you will have to either take out a new mortgage, one that you can afford, or sell the property in order to pay off the rest of the mortgage. If you choose to take out a new mortgage, then you should be aware that it will usually not start until after the probate. If you plan on letting out the property then you will need to obtain a buy-to-let mortgage specifically.
Dealing with property can be a complicated process, especially if you have never done it before. When you inherit a property from a deceased relative, the minor complexities involved in the situation can seem like huge roadblocks. However, with the right guidance, navigating through the process of executing a will to transferring ownership of a property doesn’t have to be a difficult or exhausting process. Those that struggle the most tend to be those that don’t get the right help and guidance.
Most people at least won’t have to worry about stamp duty when they are inheriting a property. However, there is a range of other charges and taxes that might be applied, so it is important to understand what these are and when they are relevant. If you are in any doubt about your property rights, you should consult with a lawyer immediately.