Renting Out Inherited Property Guide

If you have inherited property, you may be wondering whether you should opt to sell the property or rent it out as a long-term investment. There are pros and cons to both options and your decision will likely come down to what is best for your personal circumstances.

On the one hand, selling the property can release finances that could immediately improve your quality of life. However, if you’re thinking about long-term financial planning, renting the property out could be the best way to meet your financial goals.

If you have inherited property in Putney, you’re in a good position either way. There is high demand for properties in the area and in the last 12 months, the average house price was £755,518. The average rental price of £3,608 pcm in SW15 is also reflective of the high demand for rented properties.

There will be lots of factors to consider before you make your decision, so read on to find out more about the pros and cons of each option and some of the key considerations.

Can you rent out an inherited property?

Yes, once ownership of the property has legally been transferred to you, you have the choice to rent it out should you wish to. However, being a landlord comes with legal obligations and responsibilities – and there are tax implications too.

Many people who inherit property choose to rent it out to provide a steady income stream, and in some cases, it can provide the opportunity to retire earlier. You may want to speak to a financial advisor to discuss your situation and get some expert advice.

Is it better to let or sell inherited property?

Whether it is better to let or sell depends largely on your current financial situation and your long-term goals. Here are some of the main pros and cons for each:

Letting the inherited property

Pros

• Steady income – You can receive a steady income from the rental income for many years, supplementing your current income.
• Property appreciation – Property values rise over time, so you could increase your capital.
• Avoid capital gains tax – Capital gains tax is only applicable when you sell a second property, so you won’t have to pay this until you eventually sell.
• Gives you more time – If you have recently lost a loved one, you may be feeling emotionally overwhelmed. Renting the property out initially will give you more time to decide the best long-term option.

Cons

• Responsibilities – There are lots of responsibilities that come with being a landlord, including maintenance and compliance with regulations, although an estate agent can manage the property for you.
• Upfront costs – If the property is not in good condition, you may need to pay for improvements to be made before you can put it on the rental market.
• Income tax – You are required to pay income tax on rental income and must file a tax return each year.
• Hassle of managing a property – While many tenancies go smoothly, you could face problems with tenants.

Selling an inherited property

Pros

• Finance released immediately – When you choose to sell inherited property, you will have the profits available immediately. This could mean you are able to pay off debts, pay off your mortgage and enjoy a better quality of life.
• No property management tasks – Selling the property will mean you can avoid the time consuming work involved in managing a rental property. You can avoid tenant disputes, arranging maintenance and safety certificates.
• No maintenance costs – If you sell, you won’t have to pay any costs on improving or maintaining the property, you can sell it in the condition you inherited it in.
• Easier for split inheritance – If there are more than one beneficiaries, selling the property allows the estate to be split accordingly.

Cons

• Lose long-term profits – By selling, you might miss out on profits generated by years of rental income and property appreciation.
• Work involved in selling – Selling a property requires work in preparing and arranging the sale and can be a long, drawn-out process.
• Capital gains tax – You will be required to pay capital gains tax within 60 days of inheriting the property.
• Emotional burden – You may have emotional attachment to the property or may not be in the best position to make this important decision straight away after losing a family member.

Renting out inherited property – Things to consider

If you decide to rent out your inherited property, these are some of the main considerations to work through before you get started:

Self-manage vs managed on your behalf

Managing a rental property can be a lot of hard work, especially if you have no previous experience. There are many pieces of legislation that must be complied with, from gas and electrical safety regulations to performing right to rent checks.

If you are limited on time or you want to avoid the extra work involved in managing a rental property, you could use a property management service or lettings agent to do the bulk of the work on your behalf. An estate agent can also find tenants for you and may already have a list of prospective tenants looking for a rental property in the area.

The downside to using an agent is that you will need to pay a management fee which will usually be around 10%-15% of the monthly rent.

Budgeting for voids and maintenance

Renting out property is a good way to generate a passive income but there are outgoings to consider too. For example, if the property is empty for a while before a tenant is found or in between tenancies, you will have no rental income during these periods. You will also be responsible for paying any council tax and utility bills when there are no tenants in the property, so you will need to budget for these costs.

Rental properties regularly require maintenance to ensure that they are safe to live in and are kept in good condition. Typically, landlords expect to spend 1% of the property value on maintenance each year.

Local rental market

To ensure that you are asking a fair rent price, you can either research the local rental market yourself or ask an estate agent to do this for you. You can find local rental prices for similar properties on portals such as Zoopla and Rightmove.

How to rent an inherited property

There are several steps to go through before you can welcome tenants into the property, including:

Step 1 – Probate

The first stage is probate which is the legal process that confirms who the estate will be transferred to. If there is a will, this process will usually be quite straightforward. If there is no will then the beneficiaries will be decided by the rules of intestacy. Once this stage has been completed, legal ownership of the property will be transferred.

Step 2 – Clearing out the property

Before you rent out a property you will need to ensure that it is clear of belongings. You may choose to leave some furniture in the property but this could make it harder to rent out if tenants already have their own belongings.

Step 3 – Preparing the property

The property will need to be prepared for renting, involving tasks like repairing any issues, giving walls a new coat of paint, tidying gardens etc. The appearance of the property will help to attract more tenants and give you the opportunity to choose tenants you think will be reliable and responsible.

Step 4 – Pay any taxes

If the property is valued at over £325,000, you will be liable to pay inheritance tax on the amount that is above this threshold. Inheritance tax must be paid within six months of inheriting the property.

Step 5 – Find your tenants and start the tenancy

The last step is finding your tenants and creating a tenancy agreement that will need to be signed by you and the tenants. You should also complete an inventory to record the condition of the property before the tenants move in.

If you have inherited a property in Putney and are looking for some help either finding tenants or managing the property, get in touch with our lettings team.