Selling an Inherited Property: A Guide for Executors

When you inherit a property you have lots of options available to you about what to do with this asset. Whilst some people may choose to live in their inherited home, others choose to sell either to liquidate the asset in order to realise the cash value and meet various bequests of the deceased or simply because they already own a property. Others may choose to keep the home as a rental investment.

Depending on your situation, there are some considerations about selling an inherited property which may be useful to both executors and beneficiaries of the will. Whilst inheriting a home in this way may be free of any tax implications, disposing of it may not be so clear cut.

In this guide, we talk you through some of the financial liabilities that need to be met when selling an inherited property as well as some other factors which need to be carefully considered.

Do You Have To Pay Tax When You Inherit a Property?

When you inherit a property, you will not (initially) need to pay any of the following taxes on a property:

• Stamp Duty and Land Tax (SDLT)
• Capital Gains Tax (CGT)
• Income Tax

However, if the deceased’s estate is valued at over ￡325,000 which includes the probate valuation of any and all property then the estate is liable for inheritance tax.

Whilst this is not paid by the beneficiaries directly, it may mean that the sale of your inherited property is required in order to meet these costs payable to HMRC.

Once this duty has been paid then the residual sum from the sale of the property is used by the executors to meet the bequests made in the deceased’s will. This will be net of all sales and marketing costs plus any other tax liabilities owed as a result of the sale.

Remember that if the estate is valued under the current ￡325,000 threshold then you do not need to pay inheritance tax but the executors must still report the valuation to HMRC.

You should also be aware that Inheritance Tax is not due on any part of an estate even if it is over the threshold if the property has been bequeathed to:

• A spouse or civil partner;
• A charity;
• A community amateur sports club.

Image via Flickr.

What If The Home You Inherit Has a Mortgage?

If the property you are bequeathed still has a mortgage and money is owed to a lender then you may be required to sell it in order to settle this debt.

The mortgage company has the legal right to insist that the property is sold to repay the mortgage but they may prefer to come to an arrangement with the beneficiary of the property to simply transfer the existing mortgage. If you would prefer to do this then you may need to undertake an affordability assessment as well as a credit check.

Sometimes a life insurance policy may settle the debt with the mortgage company; the executor should be able to ascertain if this is the case.

Do You Have To Pay Tax When You Sell an Inherited Property?

When you sell any property, the transaction is subject to the prevailing rates of Stamp Duty and Land Tax however you will not need to pay Capital Gains Tax (CGT) if the residence if your main home.

You will only need to pay Capital Gains Tax if this is a secondary property and you make money when selling it. Any profit you make on the home will be subject to the prevailing rates of CGT and is calculated as being the difference between the value of the home when you inherited and the price you accepted on the value of the home when you sold it.

For instance, if you inherited a property five years ago that was valued at ￡220,000 at the time of the deceased’s estate being valued and accept an offer on it now for ￡295,000 then you will have to pay CGT on the ￡75,000 profit you have made during this period.

However, you can make some reasonable deductions against this liability, including:

• Cost of any legal fees in acquiring the property
• Cost of any renovations and improvements made to the property
• Cost of selling the property

Conversely, if when you sell the property, it has decreased in value since you inherited it then will not have any Capital Gains Tax to pay. Instead, you may be able to offset this loss against any other CGT liabilities you have from the sale of your assets within the same financial year.

Additionally, if you have leased the property and earned any income whilst you owned it then you will need to declare this to the Inland Revenue for the purposes of calculating your income tax.

Image via Pexels.

Claiming Private Residence Relief

If you have lived in the inherited property at all during the time you have owned it including if you or a dependent relative used the property as a main residence then you may be able to claim a ‘Private Residence Relief’.

During the period or your (or your dependent relative’s) stay in the property you can qualify for a pro-rated reduction in your Capital Gains Tax liability.

Can The Executors Force The Sale of an Inherited Property?

If Inheritance Tax is due to be paid then it is the role of the estate’s executor(s) to arrange payment.

Normally the only viable option for doing this is via the sale of a property however, if you inherit a home and do not wish it to be sold then you can talk to the executors to discuss alternative arrangements for meeting the death duties on the deceased’s estate.

Whilst the executors do not need anyone’s permission to sell a property in order to pay inheritance tax, they also have a duty to act in the best interest of all beneficiaries.

If you believe that an executor is not performing their duties in this way then you can apply to have the executor removed.

A common reason for doing this is when an executor accepts a lower price than the market value on a property to enable a quick sale. This is usually done to meet the strict timescales for settling inheritance tax liabilities but can be seen as a major point of contention with the beneficiaries.

When the estate is initially assessed for probate a property needs to be valued by an estate agent or surveyor and it is this value which sets the standard for what a home is worth. If you feel that the executor is selling a home considerably lower than its true value then these are sufficient grounds for them to be removed from their duties.

Always get a professional valuation for any property, before you market it. Image via NeedPix.

Property Assistant and Selling an Inherited Property

Property Assistant has experience in marketing and selling probate properties and we understand the need to secure the best price whilst ensuring that the process is sympathetic to the relatives of the deceased.

A family business that carers about its clients, we take enormous care with the homes that we market and help make the business of selling a home as straightforward and simple as possible.

If you’d like to know more about our services than you can contact us on 0118 912 2370.

This article was first published on the Our focus in this Monday's Free Property Information is on Selling an Inherited Property.

If you (or someone you know) is in the position of selling a property that has been inherited then there are some things to remember about Capital Gains Tax and claiming Private Residence Relief.

Did you know that an Executor can force the sale of a property but that this can also be challenged?

Find out more in our full guide.

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