Inherited Property: Your Options and Tax Implications UK 2025

Immediate Decisions After Inheriting Property

The weeks following a bereavement are difficult, but several urgent property-related decisions cannot wait. Taking these steps quickly protects the property, avoids complications, and ensures compliance with legal requirements.

Notify the Property Insurer Immediately

Standard home insurance policies often become void when a property becomes unoccupied following the owner's death. You have a limited window—typically 30-60 days—to notify the insurer and arrange appropriate coverage.

Contact the deceased's insurance company within 7 days of death. Explain the situation and request conversion to unoccupied property insurance or probate property insurance. This specialised cover costs 50-100% more than standard policies but prevents claims being rejected.

If the property will remain empty during probate (common when selling), ensure the policy covers:

• Malicious damage and vandalism
• Water damage from burst pipes
• Theft and break-ins
• Accidental damage
• Public liability

Budget £500-£1,200 annually for unoccupied property insurance depending on property value and location.

Secure and Maintain the Property

Empty properties deteriorate rapidly and attract unwanted attention. Visit weekly if possible, or arrange for neighbors or family to check regularly.

Essential maintenance tasks:

• Heating: Keep heating on low (12-15°C minimum) to prevent frozen pipes and damp issues. A burst pipe in an uninsured property could cost £10,000-£30,000 in damage
• Utilities: Keep electricity, water, and gas connected and paid. Set up direct debits in the estate's name to avoid service interruptions
• Security: Ensure all doors and windows are locked. Consider installing timer switches on lights to create occupied appearance. Remove obvious valuables
• Post: Redirect mail to executor's address or arrange collection. Accumulated post signals empty property to opportunistic burglars
• Gardens: Maintain gardens to acceptable standard. Overgrown properties attract complaints and reduce sale value

Understand Council Tax Obligations

Inherited properties are exempt from council tax for up to 6 months after death, provided the property remains empty and the estate is being administered. After 6 months, or if the property becomes occupied, council tax becomes payable.

Notify the local council of the death and provide probate progress updates. If probate extends beyond 6 months, the estate typically becomes liable for council tax. However, some councils offer discretionary exemptions during ongoing probate administration—always ask.

If siblings or beneficiaries occupy the property before completion of estate administration, they may become personally liable for council tax from occupation date.

Decide on Contents and Personal Possessions

The deceased's belongings require sensitive handling, especially when multiple beneficiaries are involved. The will should specify who receives personal items, but often doesn't cover everything.

Best practice:

• Identify items with significant financial or sentimental value and secure them safely
• If multiple beneficiaries exist, create a detailed inventory with photographs before anyone removes items
• Arrange professional valuations for antiques, jewelry, art, or collections worth over £500
• Consider estate sale or house clearance companies for remaining contents (typically £400-£1,500 for full clearance)
• Document all decisions transparently to prevent family disputes later

Understanding the Probate Process

Before you can sell, rent, or transfer inherited property, you typically need to complete probate—the legal process confirming the executor's authority to administer the estate.

When Probate Is Required

Probate is required for inherited property when:

• The deceased owned property in their sole name (most cases)
• The deceased owned property as "tenants in common" with others (their share must pass through probate)
• The property has a mortgage or secured loans against it

Probate is not required when:

• The property was owned as "joint tenants" with another person (ownership automatically passes to surviving owner)
• The property was held in trust

Probate Timeline

Understanding realistic timelines helps plan your next steps:

Complex estates with multiple properties, business assets, or inheritance tax complications can extend to 12-18 months. This timeline impacts your decision-making—if selling, buyers must accept delayed completion.

Probate Costs

Budget for these costs when planning your approach:

• Court fee: £300 (estates over £5,000), plus £1.50 per additional grant copy
• Solicitor fees (optional): £1,500-£5,000 depending on estate complexity, or 1-3% of estate value
• Property valuation: £200-£600 for RICS valuation required for probate
• Estate administration: £500-£2,000 for professional executor services if no family member can serve

Total probate costs typically run £2,500-£8,000 for straightforward property estates. These costs are paid from the estate before distribution to beneficiaries.

Your Four Main Options for Inherited Property

Once you understand the immediate obligations, you face the central decision: what to do with the property. Four primary paths exist, each with distinct financial, practical, and emotional implications.

Option 1: Sell the Property

Selling is the most common choice, particularly when multiple beneficiaries exist or when no one wants to keep the property. Sale converts the asset into cash that can be divided cleanly among beneficiaries.

Advantages of selling:

• Clean division of proceeds among multiple beneficiaries
• No ongoing management, maintenance, or landlord obligations
• Avoids family conflict over rental decisions or property management
• Provides capital for other investments or personal needs
• No inheritance tax relief advantage from keeping property vs selling

Considerations when selling:

• Market timing: Selling during probate may mean accepting current market conditions
• Property condition: Inherited properties often require repairs or cosmetic work to achieve best price
• Capital gains tax: You'll pay CGT on growth between death valuation and sale price
• Estate agent fees: 1-3% plus VAT (£2,000-£7,500 on £250,000 property)
• Solicitor fees: £1,200-£2,000 for sale conveyancing
• Emotional attachment: Some families struggle to sell family homes despite financial logic

Selling makes most sense when beneficiaries need capital, don't want landlord responsibilities, live far from the property, or disagree about how to manage it.

Option 2: Rent Out the Property

Converting inherited property to buy-to-let generates ongoing income while retaining the asset for potential future appreciation or family use.

Advantages of renting:

• Monthly rental income provides ongoing cash flow (average UK gross yield: 5-7%)
• Property retained in family for future use or for next generation
• Benefit from long-term property appreciation (historically 3-5% annually)
• No immediate capital gains tax liability (only on eventual sale)
• Rental expenses tax-deductible (though Section 24 limits mortgage interest relief)

Considerations when renting:

• Landlord responsibilities: Legal compliance, tenant management, repairs, safety certificates
• Setup costs: £3,000-£8,000 for property preparation, safety certificates, letting agent fees
• Ongoing costs: Maintenance, insurance, management fees, safety compliance (15-30% of rent typically)
• Income tax: Rental profits taxed at your marginal rate (20-45%)
• Void periods: Budget for 4-8 weeks vacancy annually
• Family coordination: Multiple beneficiaries must agree on rental terms, management approach, and profit distribution

Renting works well when the property is in good rental condition, located in strong rental market, beneficiaries want ongoing income rather than lump sum, and all parties agree on landlord approach.

Option 3: Keep and Occupy the Property

One beneficiary may choose to keep and live in the inherited property, either buying out other beneficiaries or, if sole inheritor, simply moving in.

Advantages of occupying:

• Preserves family home and memories
• No capital gains tax when used as your main residence
• Avoids transaction costs of selling and buying another property
• May be significantly better than current housing situation
• Immediate housing solution without mortgage qualification (if no mortgage on property)

Considerations when occupying:

• Must buy out other beneficiaries at market value (see section on buyouts below)
• May require mortgage qualification if insufficient cash for buyout
• Ongoing running costs may exceed previous housing costs (utilities, council tax, maintenance)
• Property may be larger or in different location than desired
• Emotional difficulty living in deceased relative's home

Occupying makes sense when the property suits your housing needs, you can afford buyout costs or are sole beneficiary, and you're comfortable with emotional aspects of living in family property.

Option 4: Buy Out Siblings/Co-Beneficiaries

When one person wants to keep property that's jointly inherited, they can purchase other beneficiaries' shares. This requires formal valuation, financing arrangement, and legal transfer.

The buyout process is covered in detail in our dedicated guide: How to Buy Out Siblings from Inherited Property UK.

Key buyout considerations:

• Professional RICS valuation required to establish fair price (£400-£800)
• Payment can be immediate cash, mortgage proceeds, or structured payment plan
• Legal transfer of equity required (£500-£1,200 solicitor fees)
• Stamp duty payable on sibling shares if total consideration exceeds £250,000
• CGT implications for selling beneficiaries on their share

Inheritance Tax on Property: Who Pays and When

Inheritance tax (IHT) is one of the most misunderstood aspects of property inheritance. Many beneficiaries fear large tax bills, but most estates pay no inheritance tax due to allowances and reliefs.

The £325,000 Nil-Rate Band

Every UK individual has a nil-rate band of £325,000. Estates valued below this threshold pay no inheritance tax. This allowance hasn't increased since 2009 and is frozen until at least 2028, meaning more estates cross the threshold due to property appreciation.

The £175,000 Residence Nil-Rate Band

An additional £175,000 residence nil-rate band applies when a main residence passes to direct descendants (children, grandchildren). This increases the effective threshold to £500,000 for individuals leaving property to children.

Importantly, married couples and civil partners can combine allowances, creating a total threshold of £1 million when the family home passes to children (£325,000 + £175,000 × 2).

Transferable Allowances Between Spouses

When the first spouse dies and doesn't use their full nil-rate band (common when all assets pass to surviving spouse), the unused percentage transfers to the surviving spouse's estate. This is why couple estates benefit from the full £1 million threshold.

When Inheritance Tax Is Payable

Inheritance tax applies at 40% on the value of the estate exceeding the available nil-rate bands. However, several key points affect when and how much:

Who pays inheritance tax: The estate pays IHT before distribution to beneficiaries. Executors must pay IHT within 6 months of death (though HMRC allows payment in 10 annual installments for property, with interest).

When beneficiaries pay personally: If executors distribute assets before paying IHT (rare and inadvisable), beneficiaries become personally liable for the tax. This is why proper estate administration is essential.

Inheritance Tax vs Capital Gains Tax

A critical distinction many beneficiaries miss: you don't pay both IHT and CGT on the same gain.

Inheritance tax is calculated on the value at death. When you inherit property, you receive it at a "stepped-up basis"—its value at death becomes your base cost for capital gains purposes.

If property was worth £400,000 at death and you sell for £450,000 after probate, you only pay CGT on the £50,000 gain, not on the full £450,000 value. The estate already paid IHT (if applicable) on the £400,000 death value.

Capital Gains Tax When Selling Inherited Property

Capital gains tax applies when you sell inherited property for more than its probate valuation. Understanding CGT helps you time sales appropriately and minimise tax liability.

How CGT Is Calculated on Inherited Property

Your capital gain is the difference between sale price and probate value (not the original purchase price when deceased bought it):

Example calculation:

Probate valuation: £350,000
Sale price (10 months later): £375,000
Estate agent fees: £5,250
Legal fees: £1,500
Allowable costs total: £6,750

Capital gain: £375,000 - £350,000 - £6,750 = £18,250

CGT Rates and Allowances

For the 2024/25 tax year:

• Annual CGT allowance: £3,000 per person (reduced from £12,300 in 2022/23)
• CGT rate on property: 18% for basic-rate taxpayers, 24% for higher-rate taxpayers

Continuing the example above with £18,250 gain:

Gain after annual allowance: £18,250 - £3,000 = £15,250
CGT at 24% (higher-rate taxpayer): £3,660

Minimizing Capital Gains Tax

Several strategies can reduce CGT liability:

1. Utilize multiple beneficiaries' allowances

If multiple beneficiaries inherit, each has their own £3,000 allowance. Transferring property to all beneficiaries before sale (rather than one buying out others then selling) allows each to use their allowance.

Example: Two siblings inherit property jointly. If they both sell their shares, they have £6,000 combined allowance. If one buys out the other then sells, only £3,000 allowance applies.

2. Sell quickly after death

CGT applies only to appreciation after death. Selling during or shortly after probate minimises time for appreciation, reducing potential gain and CGT liability.

3. Maximize deductible costs

All sale-related costs reduce your gain: estate agent fees, legal fees, EPC certificates, marketing costs, property improvements (not repairs) made before sale.

4. Consider spreading sales across tax years

If inheriting multiple properties, selling in different tax years provides multiple annual allowances (though market timing may override tax efficiency).

Income Tax If Renting Out Inherited Property

Choosing to rent inherited property creates ongoing income tax obligations. Understanding rental taxation helps evaluate whether buy-to-let makes financial sense for your situation.

How Rental Income Is Taxed

Rental income is added to your other income (employment, self-employment, pensions) and taxed at your marginal rate:

• Basic rate (20%): Income up to £50,270
• Higher rate (40%): Income from £50,271 to £125,140
• Additional rate (45%): Income over £125,140

Importantly, rental income can push you into higher tax brackets even if rental profit after expenses is modest. This is particularly problematic due to Section 24 mortgage interest restrictions.

Section 24 and Inherited Property

If the inherited property has a mortgage (from equity release or refinancing), Section 24 applies to rental income. You cannot deduct mortgage interest from rental income—instead, you receive only a 20% tax credit.

For detailed explanation of Section 24 and its impact, see our Complete Buy-to-Let Tax Guide.

Section 24 impact example:

Annual rent: £14,400 (£1,200 monthly)
Mortgage interest: £8,000
Other costs: £3,000
Your marginal tax rate: 40%

Taxable income: £14,400 (full rent, interest not deductible)
Tax at 40%: £5,760
Less 20% mortgage interest credit: -£1,600
Net tax: £4,160

Actual cash profit: £14,400 - £8,000 - £3,000 - £4,160 = -£760 (loss)

The same scenario under pre-2017 rules would have generated £1,240 profit. Section 24 converted a profitable rental into a loss-making one for this higher-rate taxpayer.

Deductible Rental Expenses

Despite Section 24 restrictions, you can still deduct all normal operating expenses:

• Letting agent and management fees (typically 10-15% of rent)
• Repairs and maintenance (not improvements)
• Insurance (buildings and contents)
• Safety certificates (gas, electrical, EPC)
• Council tax and utilities (if you pay during voids)
• Legal and accountancy fees
• Travel to property for management purposes

These deductions reduce taxable rental income, lowering overall tax liability. Keep meticulous records and receipts for all expenses.

Decision Framework: Choosing the Right Option

Every family's circumstances are unique, but this framework helps structure your decision-making process.

Sell When...

• Multiple beneficiaries want their inheritance in cash for immediate use
• No beneficiary wants ongoing landlord responsibilities or management burden
• Property requires significant repairs that beneficiaries can't or won't fund
• Beneficiaries live far from property and can't easily manage it
• Family disagreements make joint ownership unworkable
• Property market conditions are particularly strong
• Beneficiaries have high-return alternative investment opportunities for proceeds

Rent When...

• Property is in good condition in a strong rental market
• All beneficiaries want ongoing income rather than lump sum
• Property has low or no mortgage, making positive cash flow easier
• Beneficiaries have capacity and willingness to manage property (or pay agents)
• Property has long-term appreciation potential beneficiaries want to capture
• Beneficiaries are basic-rate taxpayers less affected by Section 24
• Family wants to keep property for future personal use or next generation

Keep and Occupy When...

• Property suits your housing needs and location preferences
• You can afford to buy out other beneficiaries at fair market value
• Property represents upgrade from current housing situation
• Strong emotional attachment to family home motivates keeping it
• Occupying as main residence avoids future CGT on appreciation

Buy Out Siblings When...

• You want to keep property but co-beneficiaries want to sell
• You have cash or can qualify for mortgage to fund buyout
• You plan to occupy property or convert to rental investment
• Fair valuation can be agreed without family conflict

Common Mistakes to Avoid

Mistake 1: Making Emotional Decisions Without Financial Analysis

Family homes carry significant emotional weight. Many beneficiaries keep property out of sentiment, only to discover ongoing costs exceed benefits. Equally, some rush to sell properties that would have generated excellent long-term returns.

Solution: Separate emotional and financial considerations. Analyze financial implications thoroughly using real numbers, then factor in emotional value. Quantify the "cost" of keeping property for sentimental reasons—if it's worth that cost to you, keep it. But make the choice consciously.

Mistake 2: Failing to Get Professional Valuations

Using online estimates or guesswork for probate valuations or buyout negotiations creates problems. HMRC may challenge understated valuations, and beneficiaries may dispute buyout prices based on informal estimates.

Solution: Obtain RICS Red Book valuations for probate (£400-£800). If selling to one beneficiary or third party shortly after, this valuation serves multiple purposes. For buyouts months after probate, get fresh valuation reflecting current market conditions.

Mistake 3: Occupying Property Before Completing Estate Administration

Some beneficiaries move into inherited property before probate completes or formal ownership transfers. This creates tax complications (council tax liability, loss of unoccupied property insurance) and complicates estate administration.

Solution: Wait until grant of probate and formal transfer before occupying. If immediate housing need exists, formalize temporary occupation with estate executors and notify insurers.

Mistake 4: Underestimating Rental Property Costs and Responsibilities

Converting inherited property to buy-to-let without understanding landlord obligations and costs leads to financial stress and legal problems. Many new landlords budget only for mortgage and agent fees, ignoring maintenance, compliance, and tax.

Solution: Budget comprehensively for all BTL costs (typically 25-35% of gross rent): management fees, maintenance, insurance, safety compliance, void periods, and tax. Research legal requirements thoroughly or use professional property management. See our Complete Landlord Legal Requirements Guide.

Mistake 5: Ignoring Capital Gains Tax Until Sale Completes

Many beneficiaries discover unexpected CGT bills after selling property months or years after inheritance. With annual allowances now only £3,000, gains can trigger significant tax.

Solution: Calculate potential CGT before deciding to sell. If selling is necessary, consider timing to minimise appreciation period. Ensure all deductible costs are documented and claimed.

Frequently Asked Questions