What to Do with Inherited Property UK: Options, Tax & Decisions 2025
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Inheriting a property is emotionally complex and financially significant. You face immediate decisions: Should you move in, rent it out, or sell? What about tax implications? What if you inherited with siblings who disagree? The wrong decision can cost tens of thousands in unnecessary tax or create family disputes lasting years.
This guide walks through all your options for inherited property, tax implications of each choice, practical costs, handling multiple inheritors, and making the decision that's right for your situation.
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Your Four Main Options
Option 1: Keep and Live In It
Move into the property as your main residence.
✓ Advantages:
- No capital gains tax on eventual sale if it becomes your main residence
- Save rent you'd pay elsewhere (potentially £1,000+/month)
- Keep family home with sentimental value
- Build equity rather than paying rent
- Can make property yours without family approval
✗ Disadvantages:
- Must pay council tax, utilities, maintenance (£3,000-£5,000+/year)
- May not suit your needs (location, size, condition)
- Tied to one location - reduces flexibility
- If inherited with others, they may resent you living there
- Inheritance value tied up in property, not liquid cash
Tax Impact:
Private Residence Relief: If property becomes your only or main residence, the entire period you own it is exempt from capital gains tax when you eventually sell. This can save tens of thousands in tax. Must actually live there as main home - occasional visits not enough.
Option 2: Rent It Out
Keep property as investment and become landlord.
✓ Advantages:
- Generate rental income (potentially £800-£2,000+/month depending on area)
- Keep property appreciating while earning income
- Tenant pays mortgage if property mortgaged
- Keep options open - can sell or move in later
- Build property portfolio if already landlord
✗ Disadvantages:
- Landlord responsibilities: repairs, safety certificates, tenant issues
- Upfront costs: EPC (£60-£120), gas safety (£80-£150), EICR (£150-£300), possibly furnishing (£5,000+)
- Rental income taxed at your marginal rate (20/40/45%) - reduces net income
- Capital gains tax on eventual sale (can be 28% of gain)
- Void periods without tenant (still pay bills), Bad tenants or damage
Tax Impact:
Income Tax: Rental income minus allowable expenses (mortgage interest, repairs, insurance, agent fees) taxed at 20/40/45%. Example: £15,000 rent - £5,000 expenses = £10,000 taxable income. At 40% = £4,000 tax.
Capital Gains Tax: When eventually sell, pay CGT on increase in value from probate valuation. Residential CGT rates: 18% (basic rate) or 24% (higher rate) from April 2025.
Option 3: Sell It
Put property on market and distribute cash proceeds.
✓ Advantages:
- Immediate cash inheritance (after 3-6 month sale process)
- Usually no capital gains tax if sell within 2 years at similar value
- Clean break - no ongoing property management, No family disputes over property usage
- Can invest proceeds however you wish (more liquid than property)
- Easiest option if multiple inheritors all want different things
✗ Disadvantages:
- Sale costs eat into proceeds: estate agent (1-3% + VAT), solicitor (£1-2K), EPC (£60-£120)
- Miss out on future property appreciation (property may increase significantly)
- Lose family home permanently, Emotional difficulty
- If market down, might be selling at bad time (though no better time necessarily)
Tax Impact:
Capital Gains Tax: Usually none if sell within 2 years at similar price to probate value. Market fluctuations within 2 years rarely enough to trigger CGT after £3,000 annual allowance (reducing to £1,500 in 2024/25). If property significantly increases in value or you delay sale beyond 2 years, CGT may apply on gain above allowance.
Option 4: Transfer to Family Member
Gift your inherited share to spouse, children, or other family.
✓ Advantages:
- Keep property in family, Generous gift to loved ones
- Transfer to spouse is tax-free (spousal exemption), Can help children get on property ladder
- If recipient lives there, no CGT on their eventual sale (if main residence)
✗ Disadvantages:
- Capital gains tax may apply on transfer (counted as disposal at market value)
- Recipient may pay stamp duty if property over £250,000 (or £425,000 if first-time buyer)
- You lose inheritance value - cannot get it back
- If recipient sells quickly, you've given away future sale proceeds
- Complicated if multiple inheritors (must all agree to your gifting your share)
Tax Impact:
Capital Gains Tax: Transfer counted as disposal at market value. If property increased in value since probate valuation, you pay CGT on gain above annual allowance. Transfer to spouse: CGT-free. Recipient takes over your baseline cost (probate value) for calculating their future CGT.
Decision Framework: Which Option Is Right?
Use this framework to evaluate your best option:
✓ KEEP & LIVE IN IT if:
- You currently rent and need housing
- Property is in suitable location for work/family
- Property size and condition works for your needs
- You can afford running costs (£3-5K/year minimum)
- Sentimental value is important and property suits you practically
- You're sole inheritor or co-owners agree to you buying them out
✓ RENT IT OUT if:
- Property in good rental area (student area, city center, commuter belt)
- Expected rent covers mortgage and costs with profit (aim for 5%+ yield)
- You're willing and able to handle landlord responsibilities
- You want investment income and property appreciation (long-term strategy)
- You're not sure what to do yet - renting keeps options open
- If multiple inheritors, all agree to rent and have written agreement on income/cost split
✓ SELL IT if:
- Property doesn't suit your needs and won't be rental
- You need cash now (debts, house deposit, investment)
- You don't want landlord hassle or maintenance burden
- Multiple inheritors with different views - cleanest solution
- Property needs significant repairs you can't/won't fund
- Running costs unaffordable and property won't be profitable rental
- You want emotional closure and clean break
✓ TRANSFER TO FAMILY if:
- Spouse or children desperately need housing (and you don't)
- You're financially secure and want to help family member
- Transfer is to spouse (CGT-free)
- Keeping property in family very important to you
- Property value small enough that losing inheritance not significant impact
- You understand tax implications and accept them
Handling Multiple Inheritors
Inheriting property with siblings or other beneficiaries creates complexity:
Legal Position with Co-Owners:
- You're "tenants in common" - each owns specified share (e.g., 50/50 if two siblings)
- All must agree on major decisions: selling, renting, one person living there
- No co-owner can force sale without court order (expensive last resort)
- Any co-owner living in property should pay "occupation rent" to others or cover all costs
- All co-owners jointly liable for mortgage payments (if outstanding mortgage)
Common Scenarios and Solutions:
Scenario 1: One wants to live there, others want cash
Solution: Person living there buys out others' shares.
- Get independent valuation (RICS surveyor, £200-£500)
- Calculate buyout amount (e.g., property worth £300K, 3 siblings = £100K each. One pays £100K to each of other two.)
- Person buying out may need mortgage for buyout amount
- Solicitor handles transfer (£500-£1,000)
- Buying sibling may pay stamp duty on share purchased (if total value over threshold)
Scenario 2: All want to keep and rent out
Solution: Create written rental agreement between co-owners.
- How split rental income (usually proportional to ownership shares)
- How split costs (repairs, agent fees, insurance, mortgage)
- Who manages property or use letting agent
- Decision-making process (majority vote? unanimous?)
- What happens if one wants to sell later
- Get solicitor to draft agreement (£500-£1,500)
Scenario 3: Some want to sell, some want to keep
Solution: Negotiate or seek court order.
- Try mediation first (£1-3K, often successful) to reach compromise
- Options to consider: Delayed sale (e.g., rent for 2 years then sell), One party buys out others, Rent and reassess annually
- If cannot agree, any co-owner can apply under Trusts of Land and Appointment of Trustees Act 1996 for court order
- Court usually orders sale unless exceptional circumstances (disabled sibling living there, etc.)
- Legal costs £5,000-£15,000+ - avoid if possible
Scenario 4: All want to sell - straightforward!
Solution: Proceed with sale.
- All co-owners must sign contract and transfer deed when selling
- Agree on: estate agent (get 3 quotes), target price, timeline
- Net proceeds split according to ownership shares after paying costs
- Cleanest solution if all in agreement
Costs Comparison
| Option | Upfront Costs | Annual Costs | Exit Costs |
|---|---|---|---|
| Keep & Live In |
|
| None if main residence (no CGT) |
| Rent Out |
|
| Sale costs PLUS CGT on gains (18-24%) |
| Sell |
| Council tax, utilities, insurance while selling (3-6 months) | N/A (upfront costs are exit costs) |
| Transfer to Family |
| Recipient's responsibility | N/A (already transferred) |
Tax Planning Strategies
Strategy 1: Make it your main residence immediately
If considering keeping property, move in ASAP and make it your main residence. This maximizes Private Residence Relief:
- Entire period living there as main home exempt from CGT on eventual sale
- Even if you later move out and rent it, the final 9 months of ownership always CGT-exempt
- If you own multiple properties, elect which is main residence within 2 years of inheriting
Example: Inherit £400K house, live in it 5 years, sell for £500K. No CGT because it was your main residence. If you'd rented it instead: £100K gain minus £1,500 allowance = £98,500 taxable × 24% = £23,640 CGT.
Strategy 2: Sell within 2 years
If you're going to sell eventually, do it within 2 years of death:
- Property value unlikely to change dramatically in 2 years
- Small gains covered by £1,500 annual CGT allowance (2024/25 onwards)
- Avoids complexity of tracking property expenses for CGT
Strategy 3: If renting, maximize deductions
Reduce rental income tax by claiming all allowable expenses:
- Mortgage interest (can deduct as expense or get 20% tax credit)
- Repairs and maintenance (not improvements - those are capital)
- Insurance, letting agent fees, legal fees, accountant fees
- Travel costs for property visits
- Utilities and council tax if you pay them (typically tenant pays)
Keep meticulous records. Consider hiring accountant (fee is deductible expense).
Strategy 4: Use capital losses
If you have capital losses from other assets (sold shares at loss, etc.), you can offset them against property gain:
- Carry forward losses from previous years to offset property gain
- Consider timing sale of property and other assets in same tax year to maximize loss relief
- Report all losses to HMRC to preserve them for future use
Common Mistakes to Avoid
❌ Making emotional decisions without financial analysis
Sentimental value is valid, but don't keep property you can't afford or that doesn't suit your needs. Run the numbers.
❌ Not getting professional property valuation
Probate valuation is crucial tax baseline. Undervaluing causes HMRC penalties; overvaluing means excess IHT now. Get it right.
❌ Letting property sit empty long-term
Empty property costs money (council tax, insurance, utilities, deterioration) with no income. Decide quickly and act.
❌ Renting without proper landlord compliance
Must have EPC, gas safety certificate, EICR, proper deposit protection. Fines up to £30,000 for non-compliance.
❌ Not getting written agreement with co-inheritors
Verbal agreements cause disputes. Get solicitor to draft formal agreement covering all scenarios.
❌ Ignoring capital gains tax implications
If renting long-term, CGT on eventual sale can be £20K-£50K+. Factor this into your keep-vs-sell analysis.
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You don't have to figure this out alone
Get expert guidance through every step of death administration—from probate to provider notifications—with compassionate AI support available 24/7.
AI probate prep tool
Calculates IHT, validates everything, prepares your application — saves £2,000-5,000 vs solicitor
24/7 AI emotional support
Industry-first companion for guidance and reassurance anytime
Complete contact database
Phone scripts and details for 60+ UK banks, utilities, and providers
Launch pricing • No subscription • All features included
Join families across the UK handling death admin with confidence • Takes 5 minutes to get started
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