graphic representing multiple people sharing a property

‘I’m an inheritance tax expert, and this is what you need to know if you’ve inherited a property with one or more siblings’

Heather Pollard, Head of Underwriting at Tower Street Finance explains the issues that can arise when receiving a shared inheritance, as well as how to navigate them.

When dealing with bereavement, disagreements with surviving family members about assets that have been inherited jointly can cause further stress at an already difficult time.

This is particularly common in instances where a property has been inherited by multiple siblings, but not everyone agrees on what to do with it.

To help people navigate these difficult conversations and explain the rules and tax implications involved in the different decisions, Heather Pollard, Head of Underwriting and inheritance expert at Tower Street Finance – a company that helps people access their inheritance quicker – has shared some useful information.

Inheriting a property between siblings

When inheriting a property as part of a shared inheritance between siblings, there are several things to consider before any decisions can be made on what you do next.

In terms of how an inherited property is divided between siblings, it is important to check the Will as a first step, as the split may have been dictated by the deceased.

If there is no instruction on the split within the Will, then siblings will need to decide how property will be held between the interested parties, either as joint tenants or tenants in common.

Joint tenants have an equal ownership interest with the other siblings, while tenants in common own a specified percentage of the property, which could vary between the siblings.

It’s more common that “full” siblings will inherit a property equally, but in a family situation with half or step siblings the split may not be equal.

If you have inherited a property between siblings as joint tenants, you will need to obtain the written consent of all siblings if you decide to sell the inherited property. Once the sale of the property has been completed, the proceeds of the sale will be split equally between all siblings listed as joint tenants.

However, if you have inherited a property as tenants in common, you are able to sell your share of a property to one of your other siblings (or third parties) without having to obtain written consent from any other of the tenants in common. If all siblings that are tenants in common agree to sell an inherited property, the proceeds of the sale will be divided according to the percentage each sibling owns.

If you want to find out what type of joint ownership you have, and there is no instruction in the Will, then you can visit the Land Registry website and use their Property Search Service to download a copy of the title register for the property.  It will cost you £3 to download a pdf of the title register.

If the title register includes the below wording in Section B Proprietorship Register, then you will hold the property as tenants in common.

“No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court.”

Disagreements on what to do

A common issue that can occur when inheriting a property as part of a shared inheritance between siblings is when there are disagreements over whether to keep or sell the inherited property.

If siblings have inherited a property as joint tenants and disagree over whether to sell the property, the sibling who wishes to sell the property will first need to apply to change the ownership of the property to a tenants in common ownership, via a severance of joint tenancy.

In order to avoid any surprises or further disagreements, it is important to ensure open communication between siblings, as this change can be made with or without the other siblings’ agreement.

While a sibling could change their ownership status to sell their own share of an inherited property, it is not possible to force other siblings to sell their shares in line with your own wishes if they feel differently. It is also unlikely that third party would be interested in purchasing only a percentage share in an inherited property, so it is wise to come to a mutual understanding.

Amicable buy out

If one sibling would like to sell their share of the inherited property to release the funds, while one or more siblings would like to keep the property in the family and everyone agrees, then the shares can be bought out.

This process is similar to purchasing a new property, as you will need to agree on a price to be paid for the shares. If there are any disagreements on the valuation, then an independent valuer can be appointed to ensure everything is fair.

Once funds have been obtained, then the next step will be to complete, sign and submit the necessary documents to the Land Registry. A solicitor or conveyancer can help you with the application to change the registered owner name, after which a copy of the grant of probate will need to be sent along with your application. There may also be a fee payable, which should be sent with the application, which can be calculated using Land Registry’s fee calculator.

Finally, you should settle any legal fees, mortgage fees and stamp duty land tax payments (if applicable). If you are buying your sibling’s share in the property, you may have to pay stamp duty if the value of your sibling’s share is over £250,000. Don’t forget that higher stamp duty land tax (an additional 3% on top of the SDLT rates) will be payable if your sibling’s share is worth more than £40,000, and you already own another residential property.

Order of sale

If siblings cannot come to an agreement over whether to sell or keep a property, a final step would be to apply for an Order of Sale. However, it should be noted that this can be an expensive and time-consuming process and there is no guarantee that it will result in the sale of the property. This route will also likely have a lasting impact on the family dynamic, so should always be seen as a last resort.

The sibling looking to sell would need to write to each sibling who owns a share of the property, either directly or through a solicitor, explaining their case for selling the inherited property. Each sibling must then be given the right to reply, and if a mutual agreement cannot be reached, then the matter would proceed to court.

The court will consider the intentions of the person(s) who created the trust, the purpose for which the property is held, the welfare of any minor who occupies/might reasonably be expected to occupy the property and the interests of any secured creditor of any sibling before coming to an ultimate decision.

Understanding the Residence Nil Rate Band (RNRB)

Whether siblings are looking to keep or sell an inherited property, it is important to have a clear understanding of the Residence Nil Rate Band to ensure that the correct inheritance tax has been paid. The RNRB is an extra amount of tax-free allowance that can pass on death to direct descendants including stepchildren and adopted children. It’s applied before the nil rate band (NRB) and any transferable nil rate band (TNRB) applicable when the death occurred.

Since 5th April 2017, the residence nil rate band (RNRB) could be claimed where the family home is inherited by children or grandchildren. The RNRB cannot be used against lifetime transfers made within seven years of death and is transferable between spouses/civil partners in a similar way to the main nil rate band.

The maximum RNRB is currently £175,000 and this amount is fixed until April 2028. However, anyone with a net estate valued at over £2M will see their RNRB reduced by £1 for every £2 over this threshold.

To claim the RNRB, there must be an eligible property that is left to direct descendants on death (unless downsizing provisions apply, see below). In the majority of cases, this will be a property that at some point has been the home of the deceased. The individual doesn’t have to be living there at the time of their death. For example, if they’ve moved into residential care and the property has been let out, it will remain eligible for the RNRB as long as all other conditions are met.

The property itself can include dwellings such a static caravan or even a houseboat if it can be demonstrated that this was in fact their home.

Where there’s more than one eligible property in the estate, the Legal Personal Representative can choose to nominate which one can use the RNRB. An eligible property can be situated in or outside of the UK. Only one property can be nominated in this way. Any surplus RNRB cannot be set against another property in the estate (although if there was a surviving spouse it could always be brought forward as part of their RNRB). A property that has been a buy to let for investment purposes only and never lived in by the deceased cannot be used in claiming the RNRB.

For further information about Inheritance Tax please visit: https://towerstreetfinance.co.uk/probate-explained/answering-all-your-inheritance-tax-questions/.

This article was submitted to be published by Tower Street Finance as part of their advertising agreement with Today’s Wills and Probate. The views expressed in this article are those of the submitter and not those of Today’s Wills and Probate.

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