What to do when you inherit a property

Whether you’ve inherited a house from your parents or other family members, it means there’s lots to sort out and many questions that need answering, including:

• Should you keep the inherited property or sell it?
• What if it’s been left to you and another sibling jointly?
• Is there still a mortgage on the property?
• What about stamp duty, inheritance tax and capital gains tax (CGT)?

We explain everything you need to know about inheriting a property.

What happens if you inherit a house?

Before you can move in or sell on and benefit from the proceeds, there’s a whole legal process that needs to be completed first.

Here’s a quick summary.

1.  Finding the will

The first thing you need to do with an inherited property is establish your legal relationship.

Did the person who died leave a will? Are you named as a beneficiary (which means you have legal rights to your share of the estate once it’s been administered)? Are you named as an executor (which means you’re responsible for sorting out the estate of the person who's died)?

If there isn’t a will, known as ‘dying intestate,' the next of kin can apply for a ‘grant of administration’ to prove they have the legal right to deal with the estate.

However, if there’s no will, it means the law decides who inherits what. 

2.  Going through probate

Probate is a legal process where the executors of the will sort out the deceased’s affairs.

This involves gathering and evaluating any assets – the money and property owned by the deceased at the time of their death – and paying any outstanding bills or taxes before distributing what’s left of the estate according to the will.

This can be a lengthy process that takes up to a year to complete – so you’ll have a bit of time to decide what you want to do with your inherited property.

3.  The mortgage status

As the property you’ve inherited isn’t technically yours until probate is complete, there’s not much you can do with it until then.

However, it’s worth checking if the property has a mortgage and, if so, contacting the lender to explain the situation. Most mortgages have a grace period when repayments are suspended while the estate is sorted out.

Once the property is legally yours, if there’s a mortgage to pay, you’ll be responsible for it.

4.  Transfer of ownership

Once probate has been completed and the will has been administered, ownership of the property will be transferred to you, and you can register your ownership at the Land Registry.

You don't have to do this unless the property is sold or mortgaged, but it will give you the best proof of ownership and make things more straightforward when dealing with the property in the future.

Taking advice from a solicitor and a financial adviser can help you make the best use of your inheritance.

What happens if you inherit a house with a mortgage?

If you inherit a property with a mortgage in the UK, you automatically become responsible for meeting the mortgage repayments, even if you don’t live there.

In some cases, the deceased may have a life insurance policy, which can be used to cover the cost of the outstanding mortgage.

If there’s no policy, or their life insurance policy isn’t enough to pay the mortgage off in full, you generally have two options once the property’s been officially released to you after probate is settled:

• Sell the property and use funds from the sale to pay off any remaining mortgage
• Take out a new mortgage on the inherited property in your name

Learn more: Should you put your life insurance in trust?

What happens if you inherit a share of a house?

If you have inherited a property with other people, you all own equal shares, unless stated otherwise.

You now must all decide how best to divide things up between you.

In law, there are two types of joint ownership.

1.  Joint tenants

This means everyone has equal rights to the property, and it’s split equally between the number of beneficiaries.

If one person dies, the property will stay in the possession of the others.

The last person with rights will then be able to pass the property on to the beneficiary of their choice.

2.  Tenants in common

Each person has a share of the property, but the percentage doesn’t have to be equal.

The beneficiaries involved can also pass on their percentage to someone else if they want to, giving more freedom in where the property ends up.

Sometimes, selling the property is the simplest option – once it’s sold, you can split the proceeds between you.

What do you do if you are keeping an inherited property?

Once ownership of the property is transferred to you, if there’s a mortgage on the home, you’ll need to put it in your name – either with the same lender or by setting up a new mortgage arrangement.

Either way, you’ll have to pass the usual affordability and credit checks. If you own the property outright, you can move in straight away and start enjoying your new home.

What do you do if you are selling an inherited property?

Selling an inherited property can be challenging - particularly if it’s a long way from where you live or needs renovating.

Start by clearing the property of its contents by selling items, donating to charity shops, using a professional house clearance service or putting things into storage.

If the property had elderly owners, you might want to refresh the décor and carpets to make it more appealing to potential buyers and achieve a better price.

Get advice from local estate agents on what the property is worth in its current condition and what renovations could boost its market value.

Once your property is up for sale, it’s the same as selling any other home, although you may have to pay inheritance tax (IHT)  or CGT on the proceeds.

Do you have to pay stamp duty on inherited property?

Stamp duty land tax (SDLT) is a UK property tax you pay when you purchase a property or a piece of land.

If a property is left to you in a will, you don’t have to pay stamp duty, instead you pay inheritance tax.

However, if the inherited property has an outstanding mortgage, the situation changes.

If you decide to keep the property and it has a mortgage, you might be required to pay SDLT on the remaining mortgage amount as it applies to any outstanding debt you assume as part of the inheritance.

How much capital gains tax do you pay on an inherited property?

You might have to pay capital gains tax when you sell an inherited property if it’s not your main residence.

The amount you pay depends on your personal income and the capital or taxable gains (profit) you receive from the sale.

HMRC add the profit you made from the sale to your income to see which income tax band you fall into for that year.

You then pay CGT on any taxable profit at the specific rate for your income tax band. Both a solicitor and a financial adviser will be useful here.

When must you pay inheritance tax on an inherited property?

As the inheritor, you don’t have to pay inheritance tax directly as it’s paid from funds from the deceased’s estate. 

However, as a beneficiary, you can choose to use your savings or raise funds to pay the inheritance tax if you don’t want to sell equity in a family home.

The rules around who pays what are complicated, so it’s best to consult a financial adviser.

For example:

• There’s no inheritance tax to pay if the estate is left to a spouse, civil partner, charity or a community amateur sports club.

• There’s no inheritance tax to pay on an estate worth less than £325,000. If the estate is worth more, you only pay inheritance tax on anything above this amount.

• If the deceased owned their home, or a share in it, the tax-free IHT threshold can increase to £500,000, but only if the property is left to the children or grandchildren of the deceased, including adopted, foster or stepchildren, and the total value of the estate is less than £2 million.

The standard rate of inheritance tax in the UK is fixed at 40% and is payable based on the total value of the estate, which includes property, investments and any other assets.

It has to be paid to HMRC by the end of the sixth month after the person died. For example, if they passed away in May, you must pay it by 30 November of the same year.

What if you inherit a property in a trust?

A trust is a way of holding and managing money or property for people who may not be ready or able to manage it themselves.

If you're left property in a trust, you are called the beneficiary. The trustee is the legal owner of the property and they are legally bound to deal with the property as set out by the deceased in their will.

Learn more: How to set up a trust in the UK

What if the inherited property is abroad?

When the person who owned the property dies, all their foreign assets including overseas property, bank accounts and investments, will be added to the value of their estate, which may be liable to UK inheritance tax.

There may also be additional taxes to pay in the country where the property is located.

The UK has signed double taxation treaties with many countries, which should allow you to claim back any double payments.

What happens to inherited property in a divorce?

Generally, in divorce settlements in England and Wales, all assets are pooled and treated as joint assets.

Money or property you’ve inherited is not automatically excluded from the assets to be divided.

However, every case is different and depends on individual circumstances, including the size of the inheritance, when you received it, how it was dealt with during the marriage, and the financial needs of both parties.

If you decide to sell, how long will it take to receive the money from selling an inherited property?

You won’t be able to sell the property until probate is completed unless your name is already on the deeds – for example, if you’re the deceased person’s spouse.

This process may take anywhere from eight weeks to a year.

It’s not uncommon to put the property on the market whilst waiting for the probate to be finalised, to allow for a quick sale once completed.

Get expert financial advice

Inheriting a property can be a complex and emotional experience, requiring careful consideration of legal, financial, and personal factors.

From navigating probate and dealing with mortgages to understanding tax implications and handling joint ownership, there are numerous details to manage.

Whether you choose to keep, sell, or otherwise handle the inherited property, understanding your responsibilities and seeking advice can help make the process smoother and more manageable.

Let Unbiased match you with a financial adviser for expert financial advice on managing your inherited property and navigating major decisions.

If you found this article helpful, you might also find our articles on inheritance tax business property relief and partial intestacy informative.