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Things to Consider when Renting Out your Inherited Property

by Tom McInerney | Oct 21, 2016 |

The first issue to consider is ensuring that the property is in your name. This can normally be done by way of an assent at the Land Registry although if the property is subject to a charge you will probably need the consent of the existing lender in order to do this if you are not in a position to repay the charge. If you have not done so you (or the Executors) will need a Grant of Probate in order to assent the property.

Once the property is in your name you can deal with it as you wish. It is sensible to seek professional advice prior to letting your property as there are various formalities you will need to comply with prior to and during the tenancy. It is important to have a properly drafted tenancy agreement and it is your responsibility to ensure that any deposit is held with a regulated deposit scheme.

In addition the property must be fitted with smoke alarms and if there are gas appliances you must produce a gas safety certificate and have CO2 alarms fitted. Any appliances left in the property must be PAT tested and any furnishings must meet current fire safety regulations.

From a taxation point of view you will need to think about three things:-

1.    Income Tax – any rental income you receive will of course be subject to Income Tax at your own marginal rate and it is important that you complete a Self Assessment Tax Return if you do not do so already.

If the property is still subject to a charge then you should note that the rules on deducting mortgage interest will change in April 2017. It is therefore important that you take professional advice on this point to ensure that you are not caught out by the change in the tax regime. It may be advantageous to transfer the property into a limited company owned by you or transfer the property to your spouse. Your accountant will be able to advise on this point.

2.    Inheritance Tax – any Inheritance Tax due should be paid by the executors from the estate unless you received the property as gift prior to the death of the testator. This is first and foremost the responsibility of the Executors who should provide you with a set of Estate account or confirmation that any Inheritance Tax has been paid.

The property will, of course, form part of your own estate for inheritance tax purposes and you should seek professional advice on this topic if you are significantly above the inheritance tax threshold. You should also note that the new rules on inheritance tax relief for your primary residence will not extend to a buy to let property.

3.    Capital Gains Tax – you should note that if the property is not your main residence (presumably as it is being let) there will be Capital Gains Tax to pay if you eventually sell the property. The ‘capital gain’ will be the difference between the eventual sale price and the value at the date of death of the testator. Again the Executors ought to provide you with this so that you have a ‘base cost’ for Capital Gains Tax purposes. You are also entitled to deduct any capital expenditure that you incur on improving the property so you should keep careful records. It is sensible to seek professional advice on mitigating Capital Gains Tax.

There are many other issues to consider regarding the manner in which the property is let. It is, of course, possible to let the property out as a house of multiple occupation or serviced accommodation rather than on a standard Assured Shorthold Tenancy of the whole property. We can of course advise you on these different options should you wish to consider them.

If you would like any further information about this, please contact Tom McInerney, Associate and Private Client Solicitor, on 01869 222304 or email tmcinerney@se-law.co.uk.

*Disclaimer: While everything has been done to ensure the accuracy of the contents of this article, it is a general guide only. It is not comprehensive and does not constitute legal advice. Specific legal advice should be sought in relation to the particular facts of a given situation.*

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