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What Happens When You Inherit a House from Your Parents?

Estimated reading time 11 minutes

Have you ever wondered what would happen if you inherited your parents’ house? If not, then you’re like most people. It may not be something you’ve really thought about until the inevitable happens. This is how it usually goes.

However, keep in mind that inheriting a house can have a drastic effect on your financial situation. When that happens, it’s crucial to know what to do and when. You don’t want to mess things up at a time like this.

A house is a significant asset that requires maintenance and financial investments. Therefore, inheriting a home is something that requires careful planning. If you don’t have a plan, that’s OK. We’ve put together the information you will need if you inherit a house, including selling the inherited property and dealing with inheritance tax.

Who Inherits My Parents’ Home, If There’s No Will? 

Property inheritance can feel confusing and scary, especially if there’s no will. In that case, family conflicts can become an issue if others are interested in inheriting the property. For those who are an only child, the inheritance process is somewhat more straightforward. If you’re the only child, then you won’t have to deal with contentious relatives. However, there are still things you need to know to avoid making costly mistakes.

Who Can’t Inherit? 

When no will is left, these people are unable to inherit:

Unmarried partners: if they lived with the deceased without a marriage or civil partnership, they have no right to the estate.

Relations by marriage: in-laws are not able to inherit property. This includes all in-laws such as sisters, brothers, or even distant cousins.

Close friends: friends of long- or short-standing are not able to inherit if there is no will.

Carers: while they live with and take care of the deceased, they are not qualified to inherit the property. This is against the law.

Who Can Deal with the Deceased’s Estate? 

The only ones who have a legal right to dealing with the estate of the deceased are:

  • A child of the deceased
  • Deceased’s spouse

However, before these individuals are able to deal with the estate, they must first apply to the Probate Registry for a “Grant of Letters of Administration.” You can do this on your own or hire a solicitor to apply on your behalf. 

The grant makes you the administrator of the estate. What’s more, the document contains essential information that includes proof of building societies, banks, and other organisations you can access. This gives you the right to distribute funds that belonged to the deceased. Unfortunately, it’s also possible you may have to pay part or all of the inheritance tax that may be due on the estate before being issued the grant.

This entire process is referred to as “obtaining probate,” even though there is no will.

Do you have to obtain a grant? No, not always. 

For instance, you may not need a grant if the value of the deceased’s estate is under £10,000 and does not include land, property, or shares.

You also won’t need a grant if the estate is held jointly, and the surviving joint owner will assume full ownership. This may happen, for instance, if one sibling buys out the other sibling’s share in the home.

Who Can Inherit the Deceased’s Estate?

If there’s no will, who can inherit the deceased’s estate? The law has rules that govern who will inherit an estate.

1). The Deceased was Unmarried, or Their Partner was Already Deceased

In this case, the deceased blood relatives need to make this decision. In most cases, the estate should belong to the closest blood relative. This means that a surviving child to the deceased automatically inherits the home.

If there are no blood relatives, then the government takes over the home.

2). You’re The Surviving Partner to the Deceased

If you’re married and your partner dies, then all their property is transferred to you. This can include a pension’s property, car, and other assets included in the estate. This also applies when you’re separated from your spouse but are not legally divorced.

3). There’s a Surviving Partner and Children

The estate must be valued at over £270,000 for the children to qualify to inherit. If the estate is over this amount, the children inherit equal shares from half of the estate that exceeds £270,000.

4). If the Deceased’s Children are Stepchildren, Adopted or from a Previous Relationship

In this case, the law makes it clear that children in these relationships qualify to inherit their deceased parent’s home. However, in the case of stepchildren, you can only inherit the house if there’s a will that includes legal documentation that proves your adoption status.

In addition, the child must be at least 18 years of age before they may claim the inheritance.

5). The Deceased has Surviving Children but No Partner

If there’s no will, then children collectively inherit the estate before dividing it amongst themselves. This may seem very straightforward; however, if there are many individuals who have ownership and one of them wants to sell, then how is this arranged? It can quickly become a problem if the other owners don’t want to sell.

6). The Deceased Has No Surviving Relatives

In this case, the estate becomes “vacant goods” or “Bona Vacantia.” When this happens, the Treasury Solicitor may take over the home and sell it, passing the money on to the Crown.

What Taxes Come with Inheriting a Home from Your Parent? 

When you inherit a home, you may want to know whether it’s taxable or not. The answer is yes, but not always. The determining factors on whether or not you’ll need to pay taxes are the house and the value of other assets in the estate.

The first tax to consider is the inheritance tax, which is a threshold tax. Currently, the inheritance tax rate is 40%. The current threshold is £325,000. However, you may not pay tax on anything above this when inheriting your parents’ home. The reason is that in 2017 the government created the Residence Nil-Rate Band (RNRB). The RNRB is a scheme designed to add up to another £175,000 to the tax-free allowance if the deceased left behind the property.

The amount of the allowance you can have depends on how much the house is worth. For a home over £175,000, you have the full allowance. This means you pay inheritance tax on anything above £500,000 (£325k + £175k). For a home valued under £200,000, you may not have to pay tax on the extra £25,000 unless you also inherited assets worth over £300,000.

If you’re in England or Wales, you must pay inheritance tax on the deceased person’s estate if it is over the threshold. In addition, you may be required to pay the tax on savings, stocks, and potential pensions.

What Other Taxes May Be Required? 

In addition to the inheritance tax, you may also be subject to other taxes when inheriting a home from your parents. The additional taxes may include:

  • Income tax: you may not be required to pay income tax on the home right away; however, you may have to pay the tax in the future. For instance, renting the home makes you liable to pay income tax on the rental income.
  • Capital Gains Tax (CGT): this will apply if you choose to sell the property. The current capital gains tax is 18%.

Will You Have to Pay Stamp Duty? 

No. You won’t have to pay Stamp Duty when inheriting your parents’ house. This duty is only paid when buying a home.

However, if you buy the property from other joint owners, you may have to pay the Stamp Duty. It’s best to seek out the advice of a financial advisor in these cases.

Can You Avoid Tax When Inheriting Your Parents’ Home? 

Yes. If you want to avoid the inheritance tax and the Stamp Duty, then you may be able to get out of paying them by buying your parents’ home. However, this doesn’t always work.

For one thing, your parents will need to sell the home to you below its market value. Here, the equity in the house is a gift. It’s also possible for your parents to give you the home and continue to live in it.

Another option is if your parents are still alive seven years after gifting you the home, then you will not have to pay the inheritance tax. However, you will have to pay the income tax.

Keep in mind that there are some risks involved with these methods. For example, if you die first after inheriting your parents’ home, the property will then go to your spouse or children. In that case, your spouse or children could evict your parents.

Another issue is that your parents could be accused of withholding assets from you. For instance, they could be accused of gifting you their home in order to become eligible to receive local authority funding.

These are not scenarios you want to happen, and there are other situations that could be just as challenging.

Summing It Up

There’s a lot to consider when inheriting a home from your parents. If you’re not ready to assume the responsibility of owning a home, there are options available, including renting the home or selling it quickly.

However before making any major decision, we highly recommend contacting a financial advisor who can help you find the best options for dealing with your inheritance.

Looking to sell your inherited property? Get in contact with Bettermove today. We can help you sell your house for free. Find out more with out step by step guide to selling your house.

Got questions?

Inheriting a House from Your Parents FAQs

How can one estimate the value of the inherited property for tax purposes?
Estimating the value of the inherited property for tax purposes can be a complex task. The value of the property and other assets in the estate determines whether inheritance tax is applicable. It's essential to have the property professionally valued to establish its current market worth, which will be used to calculate the inheritance tax liability.
There are exemptions and reliefs available to reduce the inheritance tax liability further. One such relief mentioned in the article is the Residence Nil-Rate Band (RNRB), which can add up to an additional £175,000 to the tax-free allowance if the deceased left behind the property. This additional allowance can help reduce the inheritance tax payable on the inherited property.
If the inherited property is rented out, it may create income tax obligations for the inheritor. While income tax may not be required to be paid right away, the rental income generated from the property is taxable. The inheritor will need to report this rental income to HM Revenue & Customs (HMRC) and pay income tax on the profits generated.
The probate process can vary in duration depending on various factors, such as the complexity of the estate and whether there are any disputes or challenges. Generally, obtaining probate can take several months to over a year. The costs associated with probate can also vary, and it may be necessary to hire a solicitor to assist with the application, which will incur additional fees.
When deciding whether to keep, rent, or sell the inherited property, there are several legal and financial considerations to take into account. Keeping the property may involve ongoing maintenance costs and potential rental income or capital appreciation. Renting out the property can generate rental income but also comes with landlord responsibilities and tax obligations. Selling the property quickly may be an option to realise the value of the inheritance, but it's essential to consider market conditions and potential capital gains tax implications. Get in touch with Bettermove to sell your property online today.