What Happens When You Inherit a House in the UK?

You Apply for Probate or Letter of Administration When You Inherit a House

After someone passes away, the first thing to determine is whether there’s a will.

What Happens if You Are Left a Property in a Will?

If the house is left in a will, then the executor of the will applies for probate. Probate is the judicial process whereby a will is “proved” in a court of law. A “grant of probate” allows the executor to gather and evaluate any assets of the deceased, pay any bills and distribute what’s left of the estate according to the will. The estate refers to all of the money and property owned by the deceased at the time of their death.

What Happens if You Inherit a House After Death Without a Will?

It’s a little different if there isn’t a will. This is known as “dying intestate”. In this situation, the next of kin will apply for a “grant of administration”. If successful, they’ll receive “letters of administration”, which proves you have the legal right to deal with the estate. The law decides who inherits what if the deceased died intestate.   

It usually takes 4 - 8 weeks to receive a grant of probate after you’ve applied, assuming there aren’t any issues. 

Before the executor or administrator can distribute the estate, they must pay off any debts, like outstanding bills and tax owed on the property.

Inheritance Tax is Paid on the Estate

In contrast to common belief, the beneficiaries – the people who inherit an estate – aren’t usually the ones who pay Inheritance Tax. 

The person dealing with the estate – or the executor of the deceased’s will – organises the payment of Inheritance Tax but it’s the estate which pays it. This is how Inheritance Tax on a house is paid. 

Inheritance Tax is paid by using money from the deceased’s savings, selling their assets or raising funds – e.g. via a mortgage - against any assets prior to selling them. 

As a beneficiary, you can choose to use your own savings or raise funds to pay Inheritance Tax if you don’t want to sell equity in a family home.

You can find out more about different ways to pay Inheritance Tax on the Gov website.

Inheritance Tax is paid to HM Revenue & Customs. You must pay it by the end of the 6^th month after the person died, e.g. if someone dies in February, you must pay Inheritance Tax by 31^st August of the same year.

We always recommend that you consult a qualified tax adviser for any advice on Inheritance Tax.

Rates of Inheritance Tax on a House

The standard rate of Inheritance Tax (IHT) in the UK is 40%, applied to the portion of an estate exceeding the tax-free threshold. The person managing the estate must report it to HMRC, even if no tax is due. 

Inheritance Tax Allowance (Nil-Rate Band) 

• No Inheritance Tax is payable on an estate valued below £325,000. This is known as the nil-rate band. 
• Any amount above £325,000 is subject to 40% tax unless exemptions apply. 

Example Calculation

If you inherit an estate worth £500,000: 

• £325,000 is tax-free
• The remaining £175,000 is taxed at 40%
• 40% of £175,000 = £70,000 (Inheritance Tax owed) 

Residence Nil-Rate Band Inheritance Tax

The RNRB (Residence Nil-Rate Band) or tax-free threshold could increase to £500,000 if the deceased owned a home (or a share in one) and left it to direct descendants (children, stepchildren, adopted or foster children, or grandchildren). 

Conditions for RNRB to apply: 

• The property must be left to the deceased’s children or grandchildren 
• The total estate value must be below £2 million 
  • If the estate exceeds £2 million, the RNRB is reduced by £1 for every £2 over the limit
  • Estates over £2.35 million lose the RNRB entirely 

When Is No Inheritance Tax Due? 

• The estate is worth less than £325,000
• The estate is left to a spouse, civil partner, charity, or a community amateur sports club

Other Considerations with Inheritance Property

There are a lot of different factors involved when you inherit an estate, e.g. how it’s divided, whether more than one person is inheriting a single property, how much money is owed on the property, etc. We’ve broken down some of these scenarios below.

Inheriting Your Parents House with Siblings

When a property is shared between people, you become joint owners. There are 2 types of joint ownership: joint tenants and tenants in common. You need to decide what kind of owners to become. We explain the difference between tenants in common and joint tenants in our guide.

Inheriting a House with a Mortgage

When you inherit a property with a mortgage in the UK, you become responsible for meeting the mortgage repayments.

Sometimes the deceased will have a life insurance policy which can be used to cover the costs. If there’s no policy, or if the policy isn’t enough and you can’t cover the repayments yourself, you typically have 2 options:

• Sell the property and pay off the remainder of the mortgage
• Take out a new mortgage on the inherited property in your name; bear in mind that the mortgage usually won’t start until after probate, once the property’s been officially released to you. Also, if you plan to let out the property, you’ll need a buy-to-let mortgage

Inheriting a Buy to Let

You’ll have to pay Income Tax on any rental income you make from an inherited property. You can find out more in: Tax on Rental Income - Guide for Landlords.

Selling Inherited Property

You may pay Capital Gains Tax when you sell an inherited property if it’s not your main residence. You can find out more in our guide: Capital Gains Tax on UK Property.

Steps to Inheriting a House

Inheriting a house in the UK involves several steps and considerations. Here's an overview of what typically happens:

1. Notification of Death - when someone passes away, the executor of the deceased person's will (if they had one) or their closest living relative typically notifies relevant authorities, including the local council, utility providers and financial institutions
2. Probate - if the deceased person left a will, the executor named in the will must apply for probate. Probate is the legal process of administering the deceased person's estate, including their assets, debts and property. If there is no will (intestacy), the rules of intestacy determine who is entitled to inherit the property and an administrator is appointed to manage the estate
3. Valuation and assessment - as part of the probate process, the value of the deceased person's estate, including the property, is assessed. This involves obtaining a valuation of the property to determine its market worth. The property may need to be professionally appraised for this purpose
4. Inheritance Tax - Inheritance Tax may be payable on the deceased person's estate if its value exceeds certain thresholds. However, there are exemptions and allowances, and tax rates vary depending on the circumstances. The executor or administrator is responsible for calculating and paying any Inheritance Tax due
5. Transfer of Ownership - once probate is granted and any Inheritance Tax liabilities are settled, ownership of the inherited property can be transferred to the beneficiaries. This typically involves transferring the property's title deed into the names of the beneficiaries through a process known as conveyancing. Legal documents, such as a grant of probate or letters of administration, may be required for this transfer
6. Managing the property - after inheriting the property, the new owner(s) must decide what to do with it. They may choose to live in the property, rent it out, sell it, or otherwise dispose of it. If the property is rented out, the new owner(s) become responsible for managing the tenancy agreements, collecting rent and maintaining the property
7. Legal and financial responsibilities - as the new owner(s) of the inherited property, they assume all legal and financial responsibilities associated with homeownership, including paying property taxes, insurance, utilities and maintenance costs

It's important to seek professional advice from solicitors, accountants, or financial advisors who specialise in probate and inheritance matters to ensure the process is handled correctly and efficiently, particularly regarding tax obligations and legal requirements.

Do You Need a New Mortgage on an Inherited Property?

After someone passes away, arranging a mortgage is the last thing you should have to think about. John Charcol can take care of everything for you. We give you advice on what kind of mortgage would suit you, find the best deal for your situation, fill out all the paperwork, liaise with the lender, and more.

Make an enquiry or call us on 0330 433 2927 and speak to an adviser today.