Selling Inherited Property
Selling Inherited PropertyIf you've inherited a property in the UK, you may be wondering how to sell it and what taxes you might be required to pay. In this guide, we will discuss everything you need to know about selling your inherited property, including how to sell it, what taxes you might encounter and how to avoid inheritance tax on your property. This way, you’ll be able to look at your options and make a decision that’s right for you.
The first step is to decide whether you want to sell the property or keep it. (For some, due to tax constraints, keeping the property for a while before selling is the better choice.) If you decide to sell it, the next step is to find a reliable estate agent or property buyer and work with them to sell your property at a comfortable price.
Inheriting a property can be an emotional time as you’ll be looking at making decisions about a home where you potentially no longer live or a home that’s far away. Chances are if you have recently inherited a property, you won’t need to make any big decisions right away, as probate tends to take time. This is a good moment to reflect on your options and decide whether you want to keep or sell the property in question. Also, technically until a property is transferred over to you, there’s not a lot you can do other than think about what you’d like to do. (Also, if there are multiple inheritors, then you need to ensure that a joint decision is made about whether it should be sold, what price it should be listed at etc.)
Once the property is officially yours, there are a few things you’ll need to address before you can sell it. If the inherited property still has an unpaid mortgage, you should work with your solicitors to settle any outstanding costs before you think about selling it.
Otherwise, if the mortgage has been paid in full, you can move ahead and start the process of selling. It follows mainly the same process you’d see selling any other property in terms of instructing estate agents and having them advertise your home and negotiate offers. Once you have found a buyer, you will need to work with a solicitor or conveyancer to complete the legal paperwork and transfer ownership of the property to the new owner.
However, there are a few differences between selling an inherited property and a regular one. The main ones are Inheritance tax and Capital Gains tax.
If you sell an inherited property in the UK, you may be required to pay tax on any profit you make from the sale. There are two types of tax you might owe:
Capital Gains tax (CGT) on inherited property: If the value of the property has increased since the date of inheritance, you may owe CGT on the profit you make when you sell the property. CGT is currently charged at a rate of 18% or 28%, depending on your income level. You can claim an annual CGT allowance, which is currently £12,300 (for the tax year 2022/23). This means that if your total capital gains for the year are below this amount, you will not owe any CGT.
Inheritance tax (IHT) on inherited property: If the property’s value is above the inheritance tax threshold, you may owe IHT. Inheritance tax is currently charged at a rate of 40% on the value of the property above the threshold. The IHT threshold is currently £325,000 per person (for the tax year 2022/23). If the property is worth less than this amount, you will not owe any IHT.
Stamp duty is not a cost you’ll need to pay when inheriting a property, but you should be aware what you decide to do next following inheriting a property could change this. However, if you buy out any shares from your inherited home or sell the inherited home and then invest the money back into a buy-to-let property, the second property could be subject to stamp duty.
If you're worried about the potential IHT liability on your inherited property, there are several ways you can reduce or avoid it altogether:
There are a variety of factors that can impact this, and you should consult legal advice to ensure that you’re making the right choice, given your circumstances.
If you want to sell your inherited property fast, it’s important to understand that even in typical probate cases, it can sometimes feel like a slow process. (More so if probate is contested, if there are issues with executors or if the deceased person’s will was particularly complex.)
However, if you want to sell up as soon as possible, there are some avenues you can explore, such as selling your property via auction (just be mindful that this doesn’t guarantee your house will sell, even if it seems quicker), renting, or simply accepting the tax cut, can help to move things along faster. Vacant properties can be attractive to potential buyers as there’s less waiting around, but it’s also important to remember the state of the property will also impact how quickly it will sell. If it’s in good condition, it may sell quickly, whereas houses that need significant renovation work may take longer.
Alternatively, if taking a significant tax hit isn’t viable for your circumstances, living in the property and keeping it could be a more cost-efficient option. Deciding to live in it as your main residence means you may be able to claim relief from CGT when you sell it. This is called principal private residence relief (PPR), and it can reduce or eliminate your CGT liability.
Selling an inherited property is a straightforward process, but it's important to understand the potential tax liabilities and how to avoid them. If you decide to sell your inherited property, you will need to work with an estate agent or property buyer and a solicitor or conveyancer to complete the legal paperwork.
If you sell the property for a profit, you may owe CGT on the gain, and if the property’s value is above the IHT threshold, you may owe IHT. However, there are several ways to reduce or avoid IHT, including making a gift, setting up a trust, taking out life insurance, leaving the property to your spouse or civil partner, using the IHT threshold, and making use of reliefs. It’s worth considering these carefully to ensure you get the best value out of your estate.
If you're unsure about how to sell your inherited property or how to reduce or avoid IHT, it's a good idea to seek advice from a solicitor or financial advisor who specialises in these areas. You’ll be able to make informed decisions and maximise the value of your inherited property for yourself and your beneficiaries.
Purplebricks is proud to be the UK’s leading estate agent. Our property expertise makes us the perfect partner to sell your house. We know the last thing you need when you come to sell is another unknown cost. So we don’t charge a percentage of the sale price - instead, we charge a fair fixed fee.
From our dedicated Local Experts to our property support team, we’re on hand to help seven days a week. Want to find out more? Book a free house valuation or instruct Purplebricks to sell your home today.