Inheriting a property with a sibling is not always a straightforward process, compounded by the fact that it arises following the sensitive times of a family bereavement. Siblings may agree on what to do with the property and of course this is the best scenario. But siblings are suddenly thrown together in a financial situation where they may not even get on, or have not got on for years. Their financial circumstances may be different and their levels of attachment to the inherited family home may be different. Therefore it may not always be smooth sailing.
- The Probate process
When someone dies with a will in place, the executor (who is usually a family member, friend or solicitor) will apply for ‘grant of probate’ from the probate registry. When they are granted probate, this in effect gives them authority to deal with the estate of the deceased person. The executor can then start paying off debts of the estate, selling assets, paying taxes and distributing relevant remaining sums to the beneficiaries.
If an asset (e.g. the property) is to be sold, the executor would need approval from all the beneficiaries inheriting the house. Therefore a sibling can block the sale of the property, by simply not giving approval to the executor or by not signing the transfer deed.
- How can siblings inherit a property: Joint Tenants or Tenants in Common?
Siblings can inherit property in one of two forms of ownership, as joint tenants or tenants in common. As joint tenants they each own a share of the whole property. In this situation, if one were to die, the other would automatically inherit the whole house. As tenants in common, the property would be split into defined shares between them. In this situation, if one were to pass away, their share would automatically pass to their own beneficiaries in their will, rather than to the sibling. If the ownership is not stated in the will, the default position will be to own as tenants in common.
- Can one sibling force a sale?
Both siblings would need to sign any disposition of sale. If agreement cannot be reached, one sibling does have the option of taking the other to court to try and force a sell. This would involve an application to the County Court or High Court seeking an ‘Order for Sale’.
The court will look at all the circumstances of the case such as how recently the property has been inherited, whether there is a minor living in the house and any evidence of intention of the parties. Whether an application is successful or not is entirely at the discretion of the court and so like many legal cases, the outcome will be difficult to predict.
Any legal action can be costly to both sides, so often the threat of it can be enough to bring siblings to an agreement.
- Options with inherited property
- Selling
Selling the property is always going to be the cleanest option. Taxes can be paid and if there is a mortgage over the property, it can be paid off, with the proceeds then distributed to the beneficiaries. You can sell through the open market, an auction or the quickest way of selling would be through a quick property buying company
- Renting the property out
One other option could be renting the property out. This may not be the best option if the relationship is not great between the siblings, as you would be entering into an ongoing financial relationship with each other, including (if applicable) obtaining a mortgage together.
It would also be prudent to think about the day to day practicalities’ of renting a property out. Being a landlord does involve a lot of “leg work” and travelling to and from the property and the reality is that this burden will invariably fall on the sibling who lives closest to the property. This sibling may be happy to do all the work, but it could cause resentment over time.
You may also need to look closely into inheritance tax (please see below), as this would still need to be paid to HMRC, notwithstanding you have not sold the property.
- One sibling buying out the other sibling
One common solution to the issue of one sibling wanting to sell, while the other wanting to keep the property, is to see if one will buy the other out. You would need to agree a price between you. One tip would be to not rely on an estate agents’ valuation here, but to get one from a surveyor. Or if you do not want to pay for one, request valuations from an estate agent but bear in mind that the actual value of the property may be on average 5-8% less than the number given by the estate agent, as their numbers tend to be higher than buyers are actually willing to pay.
A sibling could buy the other out by paying cash, obtaining a mortgage or even by one sibling becoming the lender to the other.
- A third party buying out the sibling
It may be the case that the sibling who wants to keep the property does not have the funds or the ability to obtain a mortgage, in order to buy the other out. One other option then is for a third party to buy out the sibling. This can work if the new person is a friend or associate of the sibling who wants to keep the property, but could cause complications if the new person is unconnected to this sibling.
- Inheriting property with a mortgage
Often you may be left a property with a mortgage over it.. Fortunately lenders often freeze the mortgage repayments until grant of probate has occurred, although the missed payments and interest will be added to the outstanding loan. Sometimes there may be a life insurance policy in place to pay off the mortgage. But if not and not selling the property, you will need to pay off this mortgage. If you do not have the funds to do it or do not have the ability to raise your own mortgage, this may mean selling may be the main option.
- Taxes
- Inheritance Tax
If a property is passed to a spouse or civil partner, it will be exempt from inheritance tax. If passed to siblings (if one is not a spouse), the first £325,000 (which is known as the Nil Rate Band ‘NRB’) of the estate will be tax free and the amount over that will be subject to 40% inheritance tax.
The good news is that there is an additional allowance if the family home is passed to children, grandchildren or great grandchildren (which include step children, adopted children and foster children). This allowance is called the Residence Nil Band Rate (RNBR) and raises the tax threshold by a further £175,000 to £500,000.
The executor has 6 months from the time the deceased person died, to pay the inheritance tax.
- Capital Gains Tax (CGT)
This tax will apply if the siblings hold on to a home (rather than selling) and do not keep it as a main residence. The property will be valued during the probate process.. Then when the siblings come to sell it, they will pay CGT on the rise in value from the time of probate to the time they sell it.
- Income Tax
If you decide to hold on to the property and rent it out, you may also be liable for income tax on the rent. Previously you could set off the full amount of any mortgage (and other expenditure) against the rent for the income tax bill to pay, but recent changes in property tax law have meant that a reducing amount of the mortgage can now only be set off against the tax bill. Make sure you calculate your numbers in advance, as sometimes you could end up paying more income tax that you actually receive as profit by virtue of these tax changes
- We are here to help
If you would like to take a lot of the stress out of inheriting a property Quick Property Buyer is here to help. You will not have to pay legal fees or estate agents fees and we can have cash in your account in as little as 7 days, once probate has been granted. We are experts in inherited properties and can also act as go between between siblings if that helps.
So do send us an email or give us a call to our friendly team.
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