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Inheriting private property

When you inherit a property, some decisions have to be made - you may wish to sell it, rent it out, or live in it. You'll also need to know if there'll be any tax to pay on the property. If you inherit part of a property you'll need to take joint decisions with the other owner(s).

Ways of inheriting property

There are three ways in which you might inherit a property (or part of one):

  • if the property was held under 'joint tenancy', the surviving owner inherits automatically - it's not subject to the will or law of intestacy
  • if the property was owned as a 'tenancy in common', who inherits the deceased person's share is determined by the terms of their will or (if there is no will) the laws of intestacy
  • if the property was owned outright by the deceased, or jointly by owners who have died, the terms of their will(s) determine who inherits; if there is no will it is subject to the laws of intestacy

Effect of tax or other debts on the property

No matter how the property was owned, the value of the deceased person's share is counted as part of their 'estate' for Inheritance Tax.

Our related articles cover this in more detail, but some key points to bear in mind are:

  • if you inherited the property from your spouse or civil partner Inheritance Tax won't normally be due, no matter what the value of the property (if you're domiciled outside the UK, the rules vary)
  • if Inheritance Tax is due, or there are other debts, the person responsible for sorting out the deceased person's will (called the executor or administrator) must make sure these are paid before distributing the assets that make up the estate - this would include the deceased person's share of property held as 'tenants in common'
  • if there isn't enough money in the rest of the estate to pay the outstanding tax or other debts a property held as 'tenants in common' may need to be sold; alternatively you (and any other beneficiaries or owners) may need to contribute towards what's owed to avoid a sale
  • if a property was owned as joint tenants and Inheritance Tax or other debts are due on the deceased person's estate, the executor or administrator will normally try to meet this through funds from other parts of the estate
  • if there's still a shortfall in the above situation and the executor/administrator has exhausted all means of meeting this, HM Revenue & Customs and other creditors do have the right to approach the joint owner who would technically be responsible for that shortfall
  • Introduction to dealing with finances after a death
  • What happens to debts when someone dies (money, tax and benefits section)
  • Inheritance Tax (money, tax and benefits section)

Inheriting a property with someone living in it

If you inherit part of a property and another owner is still living there you'll need to agree with them whether they will continue living there and under what terms (their right to remain may be set out in the will) or whether the property will be sold.

If you inherit a property that has a tenant, you have certain responsibilities as a landlord. Their legal rights will need to be taken into account if you wish to sell the property. If you are in any of these situations, it's advisable to get advice from a solicitor.

Registering the property in your name

Once the property passes to you, 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. It will also make things more straightforward when dealing with the property in the future.

If you decide to sell the property

Paying Capital Gains Tax

Capital Gains Tax (CGT) is paid when someone makes gains (profits) above a certain level when selling certain assets. However, when someone dies any increase in the value of the property up to the date of the death isn't subject to CGT.

If you sell it later, there may be CGT to pay on any gain since the date of death though this won't usually apply if you sell an inherited property that you've been living in as your main home since you inherited it.

If you decide to keep two homes after you inherit

If you decide to keep and occupy as a home both your own property and an inherited property you'll need to tell your Tax Office if you want to nominate one as your main home. Any gain on selling your main home is usually free of CGT, whereas a gain on any other usually isn't.

If you don't make a nomination and you later sell one of the properties, HM Revenue & Customs will look at all the facts to decide whether that property was in fact your main home.

You can change your mind at a later date about which is your nominated main home, but you must let your Tax Office know. Time limits apply.

Taking on mortgage payments

If you inherit a property which has a mortgage, you'll be responsible for the monthly payments even if you don't live there. If the payments aren't made, the property could be repossessed and sold to pay off the mortgage.

If you're worried about mortgage payments, it's important to get advice immediately. An adviser can help you work out your options and/or negotiate with your lender.

Renting the property out

If you decide to rent the property out, you'll have to pay tax on any profit you make from the rental income. You'll also have to follow relevant laws on the safety of the property and certain contents.

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

Where to get help and advice

Inheriting a property can be complicated, so it's important to get legal advice from a solicitor. You can also get free and independent advice from a number of organisations such as the Citizen's Advice Bureau (CAB).

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