This article was last updated on 24/06/2024
When a person dies it usually falls to their close friends or relatives to manage their estate. In order for them to make decisions about the deceased’s property, money and possessions they’ll need legal permission, which can either be expressed by the deceased in their will or granted by the Probate Registry.
If you’re expecting to inherit a property and want to sell it, there are a few things you’ll need to bear in mind. Depending on how much the property is worth and your relationship to the deceased, you may need to pay Inheritance Tax (IHT) on the property. Plus, what you do with the property before you sell it will affect how much capital gains tax (CGT) you’ll have to pay. Here are three things you’ll need to do to sell an inherited property.
1. Find a will
In order to confirm who stands to inherit the deceased’s estate, you’ll need to find their will. This legal document will outline how they’d like to split their assets and should also name an executor, who is the person they trust to manage their estate and carry out their wishes.
Wills can be found in a wide variety of places so it’s a good idea to check the obvious ones first. In most cases a copy of a will is stored in a safe place within the home such as a filing cabinet, lockable drawers or inside a safe.
Another option is to contact the deceased’s solicitor as it’s possible that they either worked on the will with your loved one or are storing it for them. If the will was created a long time ago, and you find that the solicitor is no longer in business, you can contact the Solicitors Regulation Authority for help. It could also be worth contacting their bank as, like the solicitor, it’s possible they may have a copy of the will on file.
If you can’t find a will by exploring any of these avenues you can contact your local Probate Registry or search the government’s probate database, which stores a public record of wills for people who died from 1858 onwards.
2. Apply for probate
Probate Registries are branches of the court that can help you get legal permission to carry out your role as the executor of a will. If there isn’t a will you’ll need to apply for a ‘grant of representation’, or ‘probate’ at your local Probate Registry.
A ‘grant of representation’ is also known as ‘probate’, and is a document that’ll give you the legal authority to act on behalf of the deceased. Once you have this you’ll be able to access their bank accounts, investments and tax affairs. After their debts have been settled you’ll be able to distribute their estate to the next of kin or those named in the will.
If you live in England and Wales you can make an application yourself on gov.uk, or alternatively you can go through a solicitor. If you live in Scotland, you’ll need to apply for ‘confirmation’ or a ‘grant of probate’ if you live in Northern Ireland.
When you may not need to apply for probate
There are some instances where you don’t need to apply for a grant of representation or probate. If the deceased has a spouse or civil partner and assets in the estate are jointly owned, no action will need to be taken. This typically applies where the surviving partner is named on assets such as a mortgage deed or bank account records. A grant of representation or probate isn’t usually required if the deceased’s estate doesn’t include property, land or shares and investments.
Get a house valuation for probate
As part of your application for a grant of representation or probate, you’ll need to find out the value of the deceased’s estate. To do this you’ll need to get access to their financial paperwork and contact banks and financial institutions to find out how much money they have in bank accounts, pension funds and investments.
Their home and any other properties they own also have to be valued, even if the beneficiaries aren’t planning to sell. The value you report to HMRC should be consistent with the amount the property could sell for if it was put on the open market on the ‘date of transfer’, which is usually the date the deceased passed away.
The process of valuing an estate can take six to nine months, possibly longer, so you should be mindful of what the deadlines are for reporting the value of the estate to HMRC and paying any inheritance tax that becomes due.
3. Pay Inheritance Tax (IHT) on property
IHT is a one-time tax that’s due on the total value of someone’s estate when they die. The amount of IHT collected by HMRC will vary depending on the total value of the estate and who inherits it.
IHT is charged at a rate of 40% on any proportion of the estate that goes over the current £325,000 threshold. This is usually referred to as the ‘nil-rate band’. Everyone can pass on £325,000 of assets before their beneficiaries will need to pay IHT, but if the deceased was married or in a civil partnership, their partner can inherit any of their unused allowance which means they could receive up to £650,000 worth of assets.
If the deceased’s assets aren’t worth more than £325,000, IHT won’t be charged. And, if the deceased leaves everything to their spouse or civil partner, IHT won’t be applicable, even if the estate is worth more than £325,000. The same rules also apply if the estate is left to a charity.
Specifically where property is concerned, direct descendants of the deceased will see their tax-free threshold increase to $450,000. That means children, grandchildren, great-grandchildren, stepchildren, adopted and foster children can all inherit property without having to pay any IHT up to £450,000.
However, other relatives such as siblings, nieces and nephews, and other parties named in a will, are required to pay IHT on any amount over the £325,000 threshold. Visit the gov.uk website to find out more about the IHT rates and how you can calculate how much tax is due.
Check the capital gains tax on the inherited property
Capital gains tax (CGT) is a tax that’s charged on the profit you make when you sell an asset that’s increased in value. You pay tax on the amount of money you’ve gained, rather than the whole amount.
CGT is sometimes applicable if you go on to sell part of an inherited estate. For example, if as a beneficiary, you were to sell a property and its value has increased since you inherited it, you might need to pay CGT on the profit you make.
If you were to live in the inherited property and use it as your home before you decided to sell it, you’d automatically qualify for private residence relief, which means your property sale would be exempt from CGT.
On the other hand, if you were to sell the property without ever living in it as your main residence, you’d need to pay CGT. Everyone has a capital gains tax-free allowance of £3,000 per year (2024/25) before tax is charged and you might be able to reduce your bill further.
You’d be able to deduct some of your costs such as those associated with selling the property, legal fees and any expenses you were to incur improving the value of the property, for example if you decided to install a brand new kitchen or bathroom. You can find out more about how CGT works and if you need to pay it on the gov.uk website.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
