Inheriting a valuable family home can be both a blessing and a source of considerable stress. The grief and fallout of losing a parent, combined with potential family tensions and tax management headaches, can make decisions about the property feel overwhelming.
Whether you choose to keep, sell, or rent the property, the decisions you make can have a lasting impact on your finances and lifestyle.
So, it’s a good idea to work with an independent financial planner to ensure your choices fit in with your wider plans (and those of your siblings if you have them), and that any transactions or decisions relating to the inherited house remain as tax-efficient as possible.
Read on to find out what happens when you inherit a valuable property and why it’s important to prepare.
Inheriting a valuable property can change your life, so it’s important to have a plan
Inheriting a property worth millions can reshape your financial prospects, open up new opportunities, or change your retirement plans.
Even if your parent or relative had an estate plan in place to deal with a subsequent Inheritance Tax (IHT) bill, it’s still important for you to work with an independent financial planner once you’ve received the property. This can help ensure that any decisions you make about the property remain efficient and align with your wider financial goals.
For example, you might decide to keep the property and use other assets to cover the IHT bill. That way, you could let the property out as an additional income stream to boost your retirement income. This could allow you to retire earlier or have more freedom to pursue your retirement dreams, however small or grand they might be.
Alternatively, if you choose to sell the property, you’ll need to manage the proceeds to make sure the funds are efficient and aligned with your long-term goals. You may want to use the money to start your dream business venture, invest in the market, or buy more property, all of which require careful planning.
Or if the home holds strong sentimental value, you might prefer to move in yourself and sell your current property.
In every instance, an independent financial planner can help you structure your decision so that your inheritance supports your current lifestyle, your long-term goals, and your future security.
Your future beneficiaries may face a higher tax bill if you inherit a property worth millions
It’s also important to consider how inheriting a valuable property and your subsequent decisions could affect future generations and their inheritance.
This is particularly important at this moment in time, as IHT receipts have reached record highs and the “Great Wealth Transfer” is set to accelerate in the coming years.
FTAdviser reports that £7 trillion will pass between generations over the next three decades. It also notes that 70% of wealthy families lose their wealth by the next generation, rising to 90% by the third generation – a stark example of why having a plan is so important.
An inherited property could significantly increase the size of your estate, meaning that more of what you leave behind could be liable for IHT. So, it’s important to understand the allowances available.
ou can usually pass on up to the nil-rate band tax-free, which is £325,000 in 2025/26. On top of this, the residence nil-rate band allows you an additional £175,000 tax-free if you pass your main home to your children or grandchildren.
This means you could pass on up to £500,000 from a single estate without paying IHT.
Additionally, as spouses can inherit from one another IHT-free and claim any unused allowances, it’s possible to pass on up to £1 million tax-free if you carefully plan your estate.
However, the residence nil-rate band gradually tapers for estates worth over £2 million and reduces by £1 for every £2 above this threshold. This means that by the time an estate reaches £2.35 million, the full residence nil-rate band is lost and more of the estate may be liable for IHT.
This could impact many more estates in the coming years, as pensions will be included in the estate for IHT purposes from 2027, which will significantly increase the overall value. You can read more about this in our previous article on the topic: Can I leave my pension to my children, and will they be taxed on it?
So, if you inherit a property worth millions, there’s a strong chance it will take your estate over the residence nil-rate band threshold. This means your beneficiaries could face a significantly higher IHT bill.
It’s important to be prepared for this and to factor it into your wider estate plan, as it could make a considerable difference to the legacy you’re able to leave behind.
Planning and open communication can help ensure your future generations are well prepared
If your estate has increased in value after inheriting a property, having open conversations about your intentions and financial arrangements can help ensure your future beneficiaries are prepared.
You might also want to explore some estate planning strategies to keep more of your family wealth in the bloodline. These could include:
- Gifting assets during your lifetime to reduce the overall value of your estate, which could also help reinstate the residence nil-rate band
- Placing assets in a trust so they’re removed from your estate for IHT purposes
- Exploring Business Relief schemes
- Taking out a Whole of Life insurance policy and placing it in trust.
When planning for the future of your family, it’s important to seek advice from an independent financial planner. They can help ensure any steps you take are suitable for your circumstances and comply with HMRC rules.
Get in touch
So, if you’ve inherited a valuable property or are likely to in the future, get in touch.
To set up an initial appointment with an Amber River financial planner, please call 0800 915 0000, or use our contact form to arrange an appointment.
Disclaimer
The information within this article was correct at the time of publishing, but laws and tax rules are subject to change. Your circumstances and where you live in the UK may also have an impact on your tax treatment.
