What Happens to My House When I Die?

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The fate of one’s home after death is primarily governed by wills, intestacy rules, and sometimes, trusts.

Leaving a Will

The best way to ensure your wishes are followed

  • Clear instructions: If you have a valid will, your house will be passed on according to your wishes. This is the best way to ensure that the right person inherits your property.
  • Trusts: Within a will, you can set up a trust, which can help reduce inheritance tax or ensure that the property is held for someone until they reach a certain age. For instance, parents might set up a trust to ensure the house isn’t sold until children are of a certain age.

No Will? Intestacy Rules Apply

In this scenario, the Government decides.

  • Immediate family: If you’re married or in a civil partnership, and you don’t have a will, your spouse or civil partner will inherit all of your estate, including the house, up to the first £322,000. Beyond this amount, if there are children, the remainder is split 50% to the spouse or civil partner and 50% equally among children.
  • Other relatives: If there’s no spouse or children, other relatives may inherit in a specific order: parents, siblings, nieces and nephews, and so on.
  • The Crown: If there are no surviving relatives, the property will pass to the Crown under the “bona vacantia” rules.

Joint Ownership

There are different rules for different scenarios.

  • Joint tenants: If you own your home as joint tenants, the surviving owner(s) will automatically inherit your share of the property. This is called the “right of survivorship.”
  • Tenants in common: If you own the property as tenants in common, your share does not automatically go to the other owner(s). Instead, it will be distributed according to your will or the intestacy rules.

Inheritance Tax

What are the implications for The beneficiaries?

  • Tax-free allowance: As of 2021, everyone has a tax-free allowance of £325,000, known as the “nil rate band.” If the property is passed to a spouse or civil partner, there’s usually no inheritance tax, regardless of the value.
  • Residence nil-rate band: There’s an additional allowance when a family home is passed to a direct descendant. This allowance was £175,000 in 2021.

Mortgages & Debts

What happens to any outstanding payments?

  • Mortgage: If there’s a mortgage on the property, it doesn’t just disappear upon death. The beneficiaries will need to decide whether they can continue the mortgage payments, refinance, or sell the property.
  • Other debts: Any debts of the deceased, including mortgages, will be paid out of the estate before any inheritance is distributed. This might necessitate the sale of the property.

To ensure that your house is handled in a manner that aligns with your wishes after your passing, it’s paramount to have a comprehensive will in place. Furthermore, staying informed about the ever-evolving rules of inheritance, taxes, and joint ownership can ensure smoother transitions and fewer surprises for beneficiaries.

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