Keep it or sell it: These are the five main costs to bear in mind if you inherit a property in a legacy

For some people it might feel like a windfall to inherit a property, but for many there are real concerns about how much it will cost and what extra burden it is going to add.

Accoring to property experts at House Buyer Bureau, these are the five main costs you need to be aware of are:

- Property insurance

- Mortgage payments

- Property maintenance and bills

- Travel costs to inspect the property

- Potential tax costs – inheritance tax, capital gains tax and income tax

Here they set out each of these in a little more detail:

Property Insurance

It is important that you insure the property as soon as possible as any policy held by your loved one will likely be terminated within 30 days of their death. The type of insurance you need depends on what you plan to do with the property. If it is going to be left empty then take out Unoccupied home insurance. If you plan on renting it out, you need Landlord insurance. And if you plan to use it as your main home you need Home insurance.

Mortgage payments

Your loved one may have had a life policy or mortgage cover that paid off the mortgage on their death, but if they didn’t then you’ll become liable for those mortgage payments even if you don’t live in the property. The first thing to do if there is a mortgage is to contact the lender as most lenders will offer a ‘grace period’ giving you a repayment holiday until probate has been completed and the property ownership has transferred to you.

Maintenance and Bills

When you inherit you become responsible for all the bills. You should take meter readings as soon as possible and contact each of the providers to let them know you’ve inherited the property. This way you can avoid large bills whilst the property remains empty.

You need to get in contact with the local council as you’ll be liable for council tax payments. Many councils may offer a discount, but this varies so you need to check.

Visiting the property is essential to make sure that it is secure and there are no immediate repairs needed.

Chris Hodgkinson from House Buyer Bureau explains, “We buy lots of properties from people who have inherited. They often don’t want the cost and hassle of owning a second property. One thing we always do is visit the property to make sure it is secure and in good repair. It is often best to leave the heating on low to avoid pipes bursting in cold weather. We recently bought an empty property and the very next day there was a rapid change in temperature and the pipe to the water tank burst causing a flood throughout the house. Luckily we had it insured or else it would have been very expensive. It just shows that it can happen to anyone!”

Travel costs to inspect the property

Chris adds, “One thing people often over look is the ongoing cost of visiting an inherited property. It is often a condition of the home insurance that you must inspect the property weekly or fortnightly. If you live a long way away, then this can soon become a significant cost!”

If you plan to keep the property then you could explore using a property management company or lettings agent, but their fees can be expensive so make sure you do your research.

Tax

There are three types of tax to be aware of; capital gain, inheritance and income tax.

Capital Gains Tax (CGT) is a tax on any profits you make when you come to sell the property. CGT is payable on any amount you make above the value of the property when you inherited it (minus any allowable deductions). If you do plan to sell the property that you’ve inherited then you should check out the HMRC’s handy calculator that helps you work out your potential tax bill.

Chris adds, “If you want to avoid paying CGT then the best option is to sell the home quickly to avoid it increasing in value. Using a property buying company like House Buyer Bureau or selling at auction are two common ways people do this”.

Inheritance tax is a tax on the property, money and possessions of someone who has passed away – known collectively as their ‘estate’. It is unlikely that you personally will have to pay any inheritance tax but as the executor of the estate it will be your responsibility to pay the tax due out of the estate. For more information about inheritance tax you could visit Home Selling Expert’s guide on the subject.

Income tax becomes payable if you decide to keep the property and rent it out. You have to pay this tax on any profit you make (which is calculated as the rental income minus any expenses or allowances). The first £1,000 of income is tax free, but after this you need to know what you owe. You can find out more at the HMRC website.

What are my other options?

For some people inheriting a property can be a positive thing as it brings new wealth and opportunity, but for many it brings cost, stress and hassle.

If you don’t want the burden of owning a second property, then one option is to sell it. The sooner you sell it, the less likely you are to incur any capital gains tax. Selling via an estate agent is likely to take at least six months, say House Buyer Bureau. Whereas selling via auction or to a property buying company may mean selling for less money, but you will have that money in weeks not months.

For your FREE cash offer, visit housebuyerbureau.co.uk/sell or call free 0800 880 3232