Rent or sell an inherited house?
Is It better to rent or sell an inherited house? An important and potentially life changing question in different ways. Here we explore the pros and cons of each and hopefully make coming to a decision easier for anyone in that position…
So you’ve inherited a house, what next?
Deciding what to do with your new property can feel overwhelming, especially at a time when emotions may be running high. If you’re not sure whether to sell your inherited house or rent it out, take your time considering the pros and cons of both options before reaching a decision.
Selling an inherited property
Selling the property has the obvious benefit of providing a lump sum, which could make life a lot easier if you’re currently on a low income or struggling to pay off debt. Alternatively, the proceeds of the sale might allow you to make a long-held dream a reality, such as travelling the world or setting up your own business.
However, there are both pros and cons to consider when selling an inherited property.
The Pros
1. Allows you to move on emotionally
If the property belonged to a loved one, you’ll have memories attached to it. Selling could sometimes be the healthiest option.
2. A lump sum could make your financial position healthier
If you sell the house quickly, you will have a lump sum that can be used to pay a chunk off your mortgage, clear debts or help cover living costs for years to come.
3. The proceeds could fund a dream project
Have you always wanted to travel the world or build your own business empire? The proceeds from the house may be enough to kickstart your dream project.
4. There is no ongoing responsibility for maintaining and managing the property.
This may be a significant factor if you already have a property, live far away or work long hours.
5. Sharing the proceeds is easier than sharing the property
If there are family members with whom you wish to share your inheritance, selling the property will give you cash to divide up as you please.
6. The proceeds can be used to upgrade your existing home
If you own another property, the money raised from the sale could be used to improve it, for example, adding a new kitchen or converting the loft. Alternatively, you could upgrade to a bigger house or one in a more desirable location.
7. You could make more out of your inheritance by investing
Once the property is sold, you could invest the proceeds in stocks and shares or a high-interest savings account, which will increase the value of your inheritance long term.
The Cons
1. You may have to pay inheritance tax
You could lose a chunk of the sale proceeds, up to 40% to inheritance tax if the property is worth more than £325,000.
2. There won’t be any benefit from any future increase in the property’s value
Over time, the value of most properties will increase. Selling as soon as you inherit could mean that you get less than if you sell in several years’ time.
3. You may be liable for capital gains tax
And yes, this would be on top of any inheritance tax owed! Capital gains tax is only payable on the amount of profit you make from selling the property. This might apply if you sell the house after completing major renovation works or waiting several years for the price to rise.
4. There is no ongoing source of income
Once the house is sold, the proceeds constitute your entire inheritance. If you spend it all on a luxury holiday, the money is gone. Keeping the house could provide an ongoing source of income that could afford you a good pension and an early retirement.
5. Selling a house can be time-consuming and stressful
Selling on the open market can take months, whereas you can usually get a tenant in much faster.
6. Not keeping the home could be emotional
If the deceased was a close loved one and the property is full of memories, not keeping it might be upsetting and emotionally draining.
Renting out an inherited property
Setting yourself up with a long-term second income sounds very appealing, doesn’t it? You could reduce your work hours or even retire early.
But let’s consider the pros and cons of this choice.
The Pros
1. Renting provides a long-term, regular income
In the current climate having the security of an extra income would provide peace of mind. It could also give you a better work-life balance and allow you the luxury of early retirement.
2. You can profit from future house price increases
The housing market may not be favourable when you inherit the property. You could rent the property out and earn an income while waiting for the market to improve and the value of the property to increase.
3. The rental income could support multiple family members
If you wish to share your inheritance, splitting the rental income is easier than sharing a property (unless you choose to sell it and can then split the proceeds).
4. You will avoid inheritance tax
This only applies when an inherited property is sold (and only if its value exceeds the tax-free threshold). However, there will be different taxes due on a rental property.
5. Avoid the stress of selling
Unless you find a private cash buyer fast or use a quick house sale company, selling a house can be time-consuming and stressful.
6. You may be able to claim tax deductions
These include deductions for legal fees, repairs and depreciation. The government website or your local citizen’s advice bureau are good sources of information on this matter.
The Cons
1. You will be responsible for managing the property
Unless you pay for a property management company to assume the responsibility, you will be at the beck and call of your tenants. If something breaks or there is an incident at the property, for example, a break-in, you will need to act quickly to resolve the situation. And SOS calls could come at any time of the day or night!
2. There will be income tax to pay
The money you receive in rent from your tenants will be treated as income by the government. This means you will be required to pay tax on it to HMRC.
3. You may have to invest in repairs before renting
The property may need repairs, renovation or updating before it can be safely rented out. It will be easier to find good tenants and achieve the income you want if the property is in good shape.
4. There is a lot of red tape to wade through
As a landlord, you will have a long list of responsibilities to fulfil, for example, arranging annual gas safety checks, making sure that wiring and electrical goods are safe, providing smoke alarms and much more.
5. The risk of unreliable tenants
No matter how much due diligence you do on prospective tenants, it’s impossible to know until they are in situ if they will look after the property and its furnishings, pay on time and generally make life easy for you. Difficult tenants could make your life hell, and once they are residents, it can be difficult to evict them legally.
There is no straightforward answer to the question, “Should I rent or sell my inherited property?”. The best choice for you will depend on your personal circumstances, the type of property you have inherited and your life goals. Consider all the pros and cons, discuss with your family and take your time deciding what’s best for you.
Whatever you decide, we’re here to help. We can advise you of the best way forward and what steps you need to take to get there. Just get in touch with your nearest branch.