What to Do When You Inherit a Property

Inheriting a property can be both a gift and a challenge. For many families, a home carries deep emotional significance, memories, milestones, and moments that make it far more than bricks and mortar. Yet, when a loved one passes away and leaves property behind, beneficiaries are often left facing a range of practical, legal, and financial decisions that can quickly feel overwhelming.

This guide aims to bring clarity to that process. Whether you’ve inherited a home alone or with others, are dealing with an existing mortgage, or simply want to understand your tax position, we’ll explore the main considerations and help you take the next steps with confidence.

1. Exploring Your Options When Inheriting a Property

Once probate has been granted and the property legally passes to you, the first decision is usually: what should I do with it?

There are typically three main routes:

1. Keep it and move in
   If the property holds sentimental value or suits your personal needs, you may choose to move in. This can be a practical option if the home is mortgage-free or affordable to maintain. However, it’s important to assess whether it fits your current lifestyle, including location, size, and running costs, and to understand any inheritance tax or council tax implications.
2. Rent it out
   Letting an inherited property can provide a valuable source of income and preserve ownership within the family. But becoming a landlord also brings responsibilities, from maintenance and insurance to compliance with rental regulations. You’ll also need to declare rental income to HMRC, as it’s subject to Income Tax.
3. Sell the property
   Many beneficiaries decide to sell, especially if funds are needed to pay taxes, settle debts, or distribute assets among multiple heirs. The sale process follows the same steps as any property sale, but timing is important; you’ll want to ensure probate is complete and any mortgage or outstanding liabilities are accounted for.

Tip: Before making a decision, it’s helpful to seek both financial and legal guidance to weigh up the long-term impact of each route. What may seem like a quick fix now (such as selling) could mean missing out on potential long-term growth or income opportunities.

2. Inheriting with Others: Managing a Property with Multiple Beneficiaries

It’s very common to inherit a property alongside siblings or other relatives. While this can help share the responsibility, it can also introduce differing opinions and emotional tension.

If multiple beneficiaries are listed, you’ll need to decide collectively what happens next. The main options are:

• Sell and divide the proceeds: The simplest route if everyone agrees. The executor handles the sale, pays any taxes or fees, and distributes what remains equally (or in line with the will).
• Buy out the other beneficiaries: If one person wishes to keep the property, they can purchase the others’ shares at an agreed valuation. This may involve remortgaging or using savings to fund the buyout.
• Co-own and rent it out: Some families choose to keep the property as a shared investment, splitting rental income and costs proportionally.

Whatever route you choose, open and honest communication is vital. Drafting a written co-ownership or buyout agreement, ideally with legal support, helps prevent future disputes and ensures everyone understands their rights and responsibilities.

Tip: A financial adviser can model different scenarios, for example, estimating potential rental yields, capital growth, and tax exposure, to help all parties make informed, balanced decisions.

3. Inheriting a Mortgage: What Happens If There’s Still a Loan?

Not all inherited homes are mortgage-free. If the deceased still owed money on the property, you’ll need to check the lender’s position and the terms of the mortgage.

Here are the key possibilities:

• Life insurance may clear the balance: If the mortgage was covered by a life insurance policy, the insurer will typically repay the loan in full, allowing the property to pass to the beneficiaries debt-free.
• If not, the mortgage remains secured against the property: The debt doesn’t disappear on death and is not transferable to a new person. Usually, repayments continue from the estate until probate is complete. Afterwards, the inheritor can either remortgage the property in their own name or sell the property to settle the balance. If there is an equity release loan against the property, the inheritor is obliged to pay off the debt at the earliest possible time. The interest will continue to grow, so it is vital to pay it off quickly.
• Lender discretion: Some lenders may allow temporary repayment holidays or a transfer of mortgage responsibility, but this varies and will depend on affordability checks and credit assessments.

If you plan to keep the home, you may need to apply for a new mortgage in your own name. If you intend to sell, liaise with the lender early to ensure they’re aware of your plans.

Tip: Always notify the lender promptly after the death; they’ll guide you through their process and help prevent any unnecessary fees or credit complications.

4. Inheriting a Buy-to-Let Property

Inheriting a buy-to-let (BTL) property adds another layer of complexity, as it’s both an investment asset and a regulated tenancy arrangement.

Check the tenancy status
If the property is tenanted, you’ll effectively become the new landlord once ownership transfers. You must ensure rent is still collected, deposits are properly protected, and the property meets legal safety requirements (such as gas and electrical certificates). If the property is managed through a letting agent, contact them immediately to update the ownership details.

Review the mortgage
Most BTL properties have interest-only mortgages. If the deceased held such a mortgage, check whether there’s life cover in place. If not, repayments will need to continue until you either refinance, repay, or sell. Lenders will usually require the new owner to meet affordability and suitability criteria before transferring the mortgage.

Understand the tax position

• Inheritance Tax: The property’s value will be included in the deceased’s estate.
• Income Tax: Any rent received is taxable income.
• Capital Gains Tax: If you sell later at a profit compared with its value at the date of death, CGT may apply.

Consider your long-term plans
You may choose to retain the BTL as part of your investment portfolio, especially if the yield is strong and the market outlook is positive. Alternatively, you could sell it to release capital, simplify your affairs, or reduce exposure to future tax liabilities.

Tip: Because BTL inheritance combines investment, tax, and property law issues, it’s worth reviewing your options with both a financial adviser and an accountant. They can help you decide whether to retain, restructure, or sell the asset based on your broader financial goals.

5. Financial Implications: Tax Liabilities and Mortgage Options

Inheriting a property can create several potential tax considerations. While not all will apply in every situation, understanding the basics helps you prepare for what might arise.

Inheritance Tax (IHT)
This is paid by the estate, not the individual inheritor, before assets are distributed. The current IHT threshold is £325,000 per person, plus an additional £175,000 residence nil-rate band if a main home is left to direct descendants. If the total estate value exceeds these allowances, the portion above is typically taxed at 40%.

Capital Gains Tax (CGT)
If you later sell the inherited property and its value has increased since the date of death, you may owe CGT on the gain. The good news is that the property’s value is “reset” at the date of death, meaning earlier growth isn’t taxed. CGT doesn’t apply if the property becomes your main residence.

Income Tax
If you rent out the property, any income after allowable expenses (such as letting agent fees, insurance, and maintenance) is taxable. You may also need to file a self-assessment tax return each year.

Mortgage considerations
If you decide to retain the property, a financial adviser can help you review mortgage options, whether that’s switching to a residential or buy-to-let mortgage, or using equity release for flexibility.

Tip: Always keep records of property valuations, probate documentation, and any related costs. These will be useful when calculating future tax liabilities or completing returns.

6. Transferring Ownership: The Legal and Administrative Process

Before you can sell, rent, or live in an inherited property, legal ownership must be transferred into your name. This process generally involves:

1. Obtaining the Grant of Probate (or Letters of Administration, if there’s no will).
2. Notifying the Land Registry and updating the property’s title deed.
3. Settling any debts or taxes owed by the estate.
4. Completing the transfer of ownership, either directly to you or to the buyer if the property is being sold.

If you inherit alongside others, all beneficiaries will typically be listed as joint owners unless you agree otherwise.

While the process may sound straightforward, it can take several months, especially if the estate is complex. Working with a solicitor and keeping all documentation organised will help things move smoothly.

Conclusion: Bringing Clarity to a Complex Situation

Inheriting a property often comes at a difficult emotional time, and the decisions you make can have both personal and financial consequences. The key is to approach the process methodically — taking time to understand your options, communicating openly with other beneficiaries, and seeking professional advice when needed.

Handled carefully, an inherited property can provide long-term financial security — whether through selling, renting, or retaining it as a family asset. With the right guidance, you can make choices that honour your loved one’s legacy while aligning with your own goals for the future.

This guide is for general information only and does not constitute financial or legal advice. Tax treatment depends on individual circumstances and may change in the future. If you’ve recently inherited a property and are unsure of the best course of action, consider speaking with a qualified adviser to explore your options.