Inheriting a House After Death

When a property owner dies, matters such as inheriting a house after death and various other complicated issues come to the fore and you need sensitive advice to guide you through this challenging period, which is most often a time of distraught emotions and grieving relatives.

The deceased may or may not have written a last will and testament (click to find out more), this itself may be contested if there is a belief that it is not valid) and if there isn't a valid will, you have to go to the court for administration for a grant of administration rather than obtain a grant of probate.

Incidentally, full probate can only proceed once HMRC has recognised the validity of any relevant intentions of the deceased and this can only go ahead once any death duties which are calculated have been paid.

This article therefore briefly looks at what to do when a property owner dies, including how a property is disposed of. We also include some examples which explore what happens when disposing of an inherited property regarding stamp duty SDLT and capital gains tax CGT.. 

Usually, the deceased’s will specifies a named person to deal with the estate (or the deceased's next of kin if there is no will). They are responsible for the legal affairs and will often obtain 'probate' (where there is a will).

With probate (click to find out much more on this subject), affairs can be - relatively speaking - generally made to be as neat as possible. A special RICS valuation called a RICS Probate Valuation is taken: note that the value of the estate is fixed at the date this valuation is carried out.

Once HMRC is satisfied that it has received a full account of all of the deceased assets and has either billed the executor (personal representative of the deceased) or determined that there is no death tax to pay, then it releases a Grant of Probate which then enables the executor to transfer or sell the property according to the deceased wishes (normally according to the latter's will).

If the property is registered and the person who died was the sole owner, then the personal representative will often either Assent (form AS1) the property to the person(s) who inherits it (beneficiaries) or Transfer (form TR1) the property to someone else.

If the deceased was a joint owner and the partner is still alive, you register the death with HM Land Registry using form DJP, along with an official copy of the death certificate.

Probate is not required to deal with the property but may be needed if the deceased’s estate warrants it.

Much depends on what the deceased owned and what the beneficiaries intend to do with the property. Whatever is decided though does not have to be rushed and is usually dealt with several weeks after the death and the reading of the will.

Hopefully a deceased person has 'put their affairs in order' but this can never be assumed. If there isn't an identifiable legal will, complete with at least one executor and one beneficiary (and the will has been appropriately witnessed), then matters must be referred to the Court of Administration (click to find out more), which aims to carry out and complete the many functions which a valid will would have covered.

Just a few of the matters include valuation of an estate including the deduction of any necessary debts, finding relatives who might be in line to be beneficiaries and even settling family disputes.

If things have to go to Administration - and ultimately the executor/s get a Grant of Administration rather than a Grant of Probate - things inevitably take longer, are more expensive and can be much tougher emotionally.

When there's a lack of identifiable or legal will, we'd always recommend that you hire a Probate Specialist to wind up matters in as efficient and cost-conscious manner as possible.

That said, we encourage all interested parties to read further to find out more about the subject in general - there are many things you can achieve on your own and some types of the detective work involved you can do just as quickly yourself and much more cheaply if you have the time to do so.

Essentially we provide links here to the relevant HM Government questionnaire/s on their website.

'What to do when a property owner dies': this tells you what to do if the deceased was a sole owner or joint owner, if there is or is not probate and if the property is not yet registered with HM Land Registry.

First go to search for property information from HM Land Registry (click to access this Government web page) where you can find out about a property in England or Wales, even if you don’t own it. You can search by address to find the owner, how far its general boundaries extend and whether it is at risk of flooding. You can also find out whether it is in fact registered with the Land Registry and whether it's owned jointly or by one person. Bear in mind that there are different rules for Scotland and Northern Ireland.

You are advised to have an email address ready and a debit or credit card to pay for any services you might have to avail yourself of - these are detailed on the page itself. You're reminded that you'll need an official copy of the register if you need to prove property ownership.

For the questionnaire proper, you will have to answer a sequence of 4 questions (at press time there were only four) and this should help you plan what to do next.

Because different taxes are involved as well as probate, the best way to examine what happens in broad terms is by considering the following three examples.

1. If you inherit a property do you pay CGT Capital Gains Tax on the proceeds when you sell?

Let's assume that you have two brothers, as an example. All of you own your own separate homes.

Your mother – who has survived her spouse, your father – has died, leaving the house, which is entirely in her name and the mortgage it had was fully paid off, to the three of you in equal shares.

Let's assume also that probate has been granted and you've paid all applicable death duties. Let's say you all choose to sell up. Do you all then have a CGT Capital Gains Tax liability, given that you all own primary residences as well?

The answer is No, because in the eyes of HMRC you are not selling a property which you personally purchased, so it cannot be viewed as something you acquired for speculative/capital reasons.

2. If you inherit a house along with others, do you have to pay SDLT Stamp Duty if you buy the others out?

Let's revisit the scenario in the previous example. Another common possibility which might occur if children inherit a property is for one – or more – of the inheritors to buy the other/s out.

So let's assume once again that you are one of three brothers who've inherited a 1/3 share in a property through probate from your deceased mother (and all death duties are paid). If you opt to buy the other two brothers out, do you have to pay SDLT stamp duty on the sum you pay to the brothers?

The answer is Yes, because in the eyes of HMRC, you're acquiring a larger share in your property, even if you require a mortgage to do so.

The answer is No, because as in the first example, your brothers didn't purchase the property in the first place as a speculative/capital vehicle – they inherited it.

3. When you've bought out other inheritors and put your sole name on the legal title, will you have a Capital Gains Tax liability on sale?

Let's now look at what happens when you decide to buy your two brothers out in more detail. When you buy them out, you'll employ a Transfer of Equity which will result in your sole name being on the title deeds.

When you come to sell, will you have a Capital Gains Tax CGT liability?

The answer is Yes, because in the eyes of HMRC, you'll be selling a second property (and you've bought the others out to put it solely in your name following probate) which is viewed as a capital/speculative disposal