Losing a loved one is a challenging and emotional time for families and friends.
Amidst the grief, the probate process adds an additional layer of complexity, particularly when it comes to dealing with property.
There are many aspects to selling property during this process, so we have put together our top tips to make this experience as smooth as possible.
Understanding probate
Probate is the legal procedure by which a deceased person’s estate is administered and distributed according to their Will or the intestacy rules, if no valid Will exists.
Property, like any other asset, is subject to probate when the property owner passes away.
It’s essential to understand that the sale of the property can’t take place until the probate process has been initiated and the executor has obtained a Grant of Probate, which gives them the authority to act on behalf of the estate.
Valuing the property
As part of the probate process, all assets must be properly valued, which includes any properties.
This valuation will be used to determine the property’s market value, which in turn affects the Inheritance Tax (IHT) liabilities for the estate.
It’s crucial to get an accurate valuation, as an undervalued property can lead to penalties and an overvalued property can result in paying more IHT than necessary.
Calculating whether IHT is due
Once the property and all other assets have been valued, you must inform HM Revenue & Customs (HMRC) about the total value of the estate, including the property.
Depending on the estate’s total value and applicable exemptions, IHT may be due as well as Capital Gains Tax (CGT).
In most cases, if the estate is valued above the Nil-Rate Band threshold of £325,000, the standard rate of 40 per cent IHT will be due, unless other reliefs are applied.
The main residence nil-rate band allows for an additional £175,000 tax-free allowance for direct descendants that are inheriting a property.
If the entire estate, including the property, is left to a spouse or civil partner, there will be no IHT due for the surviving partner.
Any unused tax-free allowance will also be passed on to the spouse, therefore IHT will only be incurred on the estate following the death of the spouse/civil partner.
As IHT must be paid within six months from the death, whether this is paid before or after the property sale is dependent on how long the process takes.
If the property has been used as a buy-to-let property or as business premises during the deceased’s ownership, CGT may be due.
This will be proportionate to the amount of time that the property was used for these purposes.
This is also applicable if the property is not the beneficiary’s main residence, and the property is sold for more than the value when it was inherited.
Marketing the property for sale
After the amount of IHT due has been calculated, it is time to put the property on the market.
Once the sale has been finalised, the proceeds can be used to settle any outstanding debts and pay any IHT that is due.
After the necessary payments have been made, the remaining balance can be split between the beneficiaries according to the Will.
This process can be difficult so it is important to understand all the steps you need to take with help from an expert.
For more advice on this, get in touch with our experienced solicitors now.