Inheriting a rental property can present both an opportunity and a challenge. Whether the property has tenants in place or stands vacant, you’ll need to make some important decisions. The process can seem daunting, but understanding your options and responsibilities will help you manage your new asset effectively. In this article, we’ll explore the choices available when inheriting a rental property, including keeping the property, selling it and your obligations in both scenarios.
The Initial Steps
Upon inheriting a rental property, the first thing to do is to establish ownership by going through the probate process. Probate is the legal process that confirms your right to inherit and manage the property. Once probate is completed, you will officially take ownership and can then decide what to do next.
If the property is part of an estate with existing debts, including mortgages or tax liabilities, you will need to factor these into your decisions. It’s important to consult a solicitor during this phase, as they can guide you through any legal intricacies and ensure all estate-related responsibilities are fulfilled.
Deciding Whether to Keep the Property
If you’re considering keeping the property, the main decision will revolve around whether to maintain it as a rental or use it for personal purposes. Retaining the property as a rental can provide you with a steady stream of income. However, this choice comes with responsibilities that require careful consideration.
Keeping the Property With Existing Tenants
If you inherit a rental property that already has tenants, it’s essential to review the existing tenancy agreement. The tenants’ rights will remain intact, and as the new landlord, you’ll inherit all legal obligations under the terms of that agreement. You cannot ask tenants to leave just because you’ve taken over the property.
Make sure you familiarise yourself with the key aspects of the agreement, such as the length of the lease, rental payment schedule and any clauses related to maintenance and repairs. You’ll also need to check if the tenancy deposit has been legally protected in a government-approved deposit protection scheme, as this is a legal requirement for landlords in the UK.
One of the first steps as the new landlord should be informing the tenants about the change in ownership. You’ll need to update the tenancy records and inform them of how to contact you, or your appointed letting agent, moving forward. If you decide to continue renting the property out, it may be beneficial to engage the services of a professional letting agent, who can take care of the day-to-day management of the tenancy.
Keeping the Property Without Tenants
If the property is vacant when you inherit it, you’ll have more flexibility in deciding what to do next. You could choose to move into the property yourself, or you could rent it out to new tenants.
If you decide to let the property, you’ll need to comply with the legal obligations for landlords in the UK. These include ensuring the property meets safety standards, such as gas safety checks, electrical inspections and providing an Energy Performance Certificate (EPC). Additionally, you must ensure the property is suitable for habitation, and this could involve addressing any maintenance issues before tenants move in.
Using a letting agent in this scenario can help simplify the process. They can assist with tenant sourcing, vetting and ongoing property management, freeing you from the hands-on aspects of being a landlord.
Selling the Property
If keeping the property doesn’t align with your financial or personal goals, selling may be the best option. Before making this decision, you’ll need to consider the following factors:
Selling with Tenants in Place
You can sell a rental property with tenants in place, but this approach comes with specific challenges. The property will appeal mainly to investors, as the tenancy will transfer to the new owner. The key here is to maintain a strong tenancy record, as prospective buyers will likely want to see the rental history, proof of rent payments and confirmation that the property meets legal standards.
Before listing the property, speak to the tenants and explain the situation. They have a legal right to remain in the property under their existing tenancy agreement and early communication helps avoid misunderstandings or disruptions.
Selling a Vacant Property
Selling a vacant property is often a quicker process, as it will appeal to both investors and owner-occupiers. If you’re thinking about selling, consider the state of the property—making minor repairs or redecorating could increase its market value. Similarly, obtaining an accurate valuation is crucial, so you understand how much you can expect to make from the sale.
Be mindful that selling a property incurs costs, such as estate agent fees, conveyancing costs and possibly Capital Gains Tax, depending on how much the property has appreciated in value since it was originally purchased. Consulting with an estate agent or a financial adviser will help you navigate these aspects.
Legal and Financial Obligations
Regardless of whether you choose to keep or sell the inherited property, you’ll need to handle the legal and financial obligations attached to it. This may include mortgage repayments if the property comes with an outstanding loan. You’ll also need to ensure that property taxes and insurance are up to date.
If you decide to let the property, you’ll have to comply with landlord regulations, including paying income tax on any rental profits. However, you can deduct allowable expenses such as property maintenance, letting agent fees and insurance from your taxable income.
In addition, if the property increases in value while you own it and you later decide to sell, you may be liable for Capital Gains Tax. Understanding your tax obligations and seeking professional advice can help minimise any unexpected costs.
Inheriting a rental property presents a range of opportunities and challenges. Whether you decide to keep the property as a rental, live in it, or sell it, each option comes with its own set of considerations. Understanding your legal obligations as a landlord, or the financial implications of selling, is crucial to making the best decision for your circumstances.
If you’ve inherited a rental property and are unsure of your next steps, contact Newton Fallowell for expert advice. Our experienced team can guide you through the complexities of property management, sales and letting, ensuring you make informed decisions that work for you.
