Inheriting property from a parent
If you inherit property from a parent who has become ill or sadly passed away, there are a number of big decisions you will need to make, some of them quite quickly at what can be a very stressful and emotional time.
Here are the key questions and choices you’re likely to face, along with our advice on how to decide on the best route forward for you and your family.
Can you afford to keep the property?
If it has been left to you in your parent’s will, it counts towards the value of their estate and may well be liable to inheritance tax. If the total estate value is above £450,000, it is likely there will be some tax to pay and if you don’t have sufficient capital reserves to cover the bill, you may be forced to sell the property, even though you might not want to. So, the first thing to do is engage a RICS surveyor to carry out a formal valuation and speak to a financial adviser about your options.
Do you want to own two properties?
If you want to hold on to the inherited property and already have your own home, you need to decide whether to sell your home, or keep both and rent one out. Assuming you want to keep both, there is firstly the question of the mortgage. The inherited property may be owned outright but you’re likely to still have a mortgage on your own home.
In this case, there are three things to consider:
- Which property are you going to live in yourself?
- If you choose to stay in your own home and let the inherited property, would it make financial sense to release some equity and take out a Buy to Let mortgage on it?
- If you choose to move into the inherited property and let your former home, you will need to change the mortgage to a buy to let product. Bear in mind that the maximum loan to value is lower for Buy to Let mortgages and you will need to ensure the property and potential rental income satisfy the criteria, which is different to the criteria for a standard residential mortgage on your own home. If you haven’t had a Buy to Let mortgage before, come and speak to one of our experienced advisers, who can guide you through some options and the application process.
To help with this decision making, it is wise to talk to an independent financial adviser who can help you with your decision making based on your future financial needs and any tax impact.
How much refurbishment is required?
If you’ve inherited a property that’s been a family home for many years, it may likely to require some updating. Tenants these days expect modern kitchens and bathrooms and a clean, neutral décor with good quality finishes, - certainly the best tenants who are prepared to pay a decent amount of rent. You also need to make sure you satisfy certain health and safety requirements, such as installing fire alarms and making sure the boiler and electrics are up to standard - the exact requirements will depend on the type of let. If you’re planning on letting to students or by the room to working professionals, it will be classed as a House in Multiple Occupation, which could require a license and carries its own additional standards, such as putting in fire doors, a higher grade of fire alarm system and potentially adding bathroom facilities.
So it’s important you understand not only how the property should be fitted out and decorated to attract the right tenants, but also the criteria for it to be considered a legal let. If you come and speak to us, we will be able to advise you on what’s required and help you understand what you should budget for. Depending on how much it will cost to get your property ready to rent and how much capital you have available, you may find you need to rethink your plans. If you don’t have the capital yourself, it’s worth discussing with a financial adviser and a mortgage expert whether it might makes sense to remortgage and release some equity to cover the cost of the works.
Understanding your legal responsibilities as a landlord
With around 400 different rules and regulations governing the property market, and changes being introduced all the time, keeping track of your legal responsibilities is almost a full-time job in itself. In addition to all the health and safety requirements, which include carrying out a risk assessment on any potential hazards and ensuring you obtain the necessary gas and electrical safety certification, you must:
- Comply with your particular local authority licensing rules
- Understand your obligations under the terms of the tenancy agreement
- Know when you can and can’t enter the property
- Understand the correct legal procedures for giving notice and evicting tenants
- Understand your obligations for carrying out maintenance and making necessary repairs
- Know about protecting your tenants’ deposits and the information you must legally provide them with…
…the list goes on.
And with all the new PRS legislation currently in the pipeline (see our earlier article, ‘The latest government proposals for changes to the PRS’), most of which will affect landlords, it’s vital you have a way of staying up to date with these legal changes.
Manage it yourself or use an agent?
Given the raft of legislation you have to comply with as a landlord, if you intend to manage the property yourself, it really is essential you join both a local landlord association and one of the national bodies, such as the National Landlords Association or the Residential Landlords Association, which offer advice and support.
But, as the Government continues to tighten up letting laws and local authorities are given more powers and backing to crack down on landlords found to be breaking the rules, by far the best route forward is to engage an agent that is already a member of one of the key industry bodies.
Reeds Rains has held membership of ARLA for many years, which gives you peace of mind that our staff are properly trained and informed, and that we adhere to a code of conduct. As well as handling all the day-to-day property and tenant management on your behalf, we can also take the vast majority of the legal burden off your shoulders.
So, if you have recently inherited a property or know that you are likely to in the near future, come and speak to us and we can help you work through your options.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
This firm usually charge a fee for mortgage advice. The amount of the fee will depend upon your circumstances and will be discussed and agreed with you at the earliest opportunity