How does property inheritance work?

Property inheritance is an important part of estate planning, determining how ownership of property is transferred after a person’s death. The process varies depending on whether the deceased left a will, the type of property ownership, and any existing mortgage obligations.

From gifting a house during your lifetime to understanding the roles of executors, trustees, and beneficiaries, property inheritance involves quite a lot of legal jargon to get your head around. 

On this page we will cover how property is distributed through a will, the implications of joint ownership, managing inherited property with tenants or mortgages, and the differences between outright gifts and trusts.

Can you gift your house to your children before you die?

Yes, you can gift your house to your children if you own it outright (i.e. have no outstanding mortgage). The most common method is a Transfer for Nil Consideration, also known as a Deed of Gift.

In order to be able to gift your house to your children, you must:

• Be of sound mind and not under pressure.

• Be listed as the property owner with the HM Land Registry.

• Have no outstanding mortgage (or transfer equity if there is a mortgage).

• Ensure no charges are secured against the property.

Something to note is that gifting your house reduces your Inheritance Tax liability. Under the seven-year rule, if you gift the property at least seven years before your death, it may reduce or completely eliminate Inheritance Tax on the estate.

If you wish to stay in the house after gifting the property, then you must:

• Pay rent at market rates.

• Pay the bills. If you live rent free, the property won’t be exempt from Inheritance Tax.

Is it better to gift a property or put it in trust?

Gifting your house to your children and placing your house in a trust differ significantly in terms of ownership, control, and tax implications. When you gift your house outright, ownership is immediately transferred to your children, and you relinquish all legal rights to the property.  Which can expose the property to risks, such as being sold without your consent or included in divorce settlements,

In contrast, placing your house in a trust allows you to retain a degree of control through a trustee arrangement while setting specific conditions for how and when the property is passed to your children. Trusts can also provide additional protection from creditors or marital disputes and may offer more flexibility for estate planning.

What to do if there is a mortgage in place?

If your house has a mortgage, neither gifting it nor placing it in a  trust may be the best option for your children. Instead, selling the property could be a more practical solution. By selling, you can pay off the mortgage, release the equity in the property and reinvest the remaining funds into assets like Lifetime ISAs or similar investments for your children. 

Additionally, you could use part of the proceeds to fund your retirement or downsize to a smaller property. A quick and efficient way to sell your home is through a cash buying company, such as The Property Buying Company. This option allows you to sell your house directly in as little as 7 days, with cash released to your bank account within 48 hours, providing immediate financial flexibility.

Selling your house can also simplify your estate. Converting a major asset into cash makes it easier to distribute funds among beneficiaries in line with your wishes, reducing the potential for disagreements. It’s a straightforward way to ensure your family benefits from the value of your home without the complications of managing or inheriting a mortgaged property.

Who is responsible for a house when the owner dies?

When a homeowner dies, responsibility for the house depends on several factors, such as the existence of a will, the type of property ownership, or whether the property is part of a trust.

If there is a will, the executor named in the will is responsible for managing the house. This includes handling any debts, paying taxes, and distributing the property according to the deceased’s wishes. Until ownership is formally transferred to the beneficiaries (often via an assent), the executor oversees the property.

If there is no will, responsibility falls to an administrator appointed by the court, who follows intestacy rules to manage and distribute the deceased’s estate, including the house. Close family members, such as a spouse or children are usually prioritised as administrators.

If the house is jointly owned under a joint tenancy, the surviving co-owner automatically assumes full responsibility without the need for probate. In a tenancy in common, the deceased’s share becomes part of their estate, and the executor or administrator manages it.

Until the property is transferred to the rightful heirs or beneficiaries, the executor, administrator or trustee is responsible for its upkeep, bills and any legal processes required.

How does inheriting private property work?

Inheriting private property involves several responsibilities and considerations, depending on the specific circumstances of the property.

How is property distributed according to the will?

A will enables the deceased to specify how their property and other assets, such as bank accounts and personal belongings, should be distributed. The terms of the will dictate who inherits the property and under what conditions. Here’s how property distribution is managed:

• Property owned outright: The will designates the beneficiary who inherits full ownership of the property.

• Property owned as a tenancy in common: The deceased’s share of the property is distributed to the beneficiary named in the will, while the co-owners retain their share.

• Property left in trust: If the property is placed in a trust, the named trustees manage it according to the will’s instructions. For example, a surviving spouse or another beneficiary may receive a “life interest,” allowing them to live in or benefit from the property for their lifetime, after which it passes to other beneficiaries.

• Guardianship for minor children: A will can also specify guardians for minor children, ensuring their care aligns with the deceased’s wishes.

If there is no will, the rules of intestacy apply, distributing the property according to a predefined hierarchy:

• Surviving spouse and children: The estate is shared between them, often prioritising the spouse.

• Parents: If no spouse or children survive, the parents inherit the estate.

• Next of kin: If there are no parents, children or spouse, the estate passes to other relatives starting with direct descendants.

• Children under 18: Their share is held in trust until they turn 18 or marry.

Having a will ensures that property and other assets are distributed as intended, avoiding the default rules of intestacy and providing clarity and security for beneficiaries.

Does this change if siblings are involved?

Yes, the distribution of an estate can differ if there are multiple siblings involved. If there is a will, siblings may share the property equally, or specific portions may be allocated, depending on the deceased’s wishes.

If there is no will, and the deceased has a surviving spouse or children, then the siblings will not inherit anything. But, if there is no surviving spouse or children, then they will inherit the estate in equal shares.

 If a sibling has died before the deceased, their share may pass onto their children (the deceased’s nieces or nephews). Half siblings may also inherit, but only if there are no surviving full siblings.