DC have inherited a flat! Sell or keep?

[EnergyEmoji]

A fabulous problem to have I know, but my two DC have unexpectedly inherited from a relative.

The property is a high rise flat in 60's style block on the edge of a busy city near very good transport links. It's an area they know well as it's not far from the family home. It has decent sized rooms and lovely views.

Dc are late teens/early twenties and just starting out in life. Both live away from home and have no plans to return.

There are three options:-

First is to keep it and rent it out so they can get some income from it. Neither have a property of their own. This is my least favourite option as I know I'll end up doing the practical stuff like getting a call at 3am from tenants to say the boiler is broken! We have no experience of letting, but I'm sure with all the rules and regulations it would be a nightmare.

Option two is to keep it and use it as a base for storing furniture and to use themselves when they come home for Christmas, etc. This has some appeal, but they'd have to think about paying service charges, council tax, etc.

Option three is to sell it.

It's very much their decision, but I would like your thoughts please as they're due here in a couple of days for the funeral (which I'm organising) and they want to discuss it.

I have a rental property, managed through an agent. It brings in about £10,000 pa after all costs. I pay tax, they presumably wouldn’t so it could be a nice little earner for a few years to help them through uni. Then sell when they need a house deposit in 5 years’ time. All depends on rents and costs.

Just noting that if the DC are over 18 and the property has been left to them through a will, the decisions about what to do with the flat are entirely theirs.

The most sensible thing @EnergyEmoji can do, is to ensure they have excellent and independent legal and financial advice.

I’m sorry for your loss.

I’d be tempted to sell, particularly because of the ages of your DC.

They won’t be eligible to utilise a Lifetime ISA due to them inheriting the flat and officially being homeowners.

By selling the flat, it will still give them a massive boost whether they want to use the money to go travelling or towards a deposit on a property etc.

Yes, granted, but hopefully they’ll have the common sense to invest it and not just take the whole lot and blow it.

Are you sure the flat won’t need to be sold anyway to pay inheritance tax or is there enough liquidity in the estate to cover that?

Probably best bet is to sell - landlord regulations are becoming increasingly punitive and for a one off property it’s hardly worth it.

The person has died, it's not their concern anymore. It makes sense to discuss these things when dc return home rather than dragging it out for god knows how long. It would still need to be insured.
It won't be everyone first choice to live in a tower block so depending on the price may be awhile before it sells.
Nice deposit for dc for when they need it for their own homes.

Would they though?

If the executors sell the property once probate is granted and then give DC the cash the flat would never have been put in their names.

Sell. They would need to think about potential capital gains etc.

https://www.moneyhelper.org.uk/en/family-and-care/death-and-bereavement/calculating-and-paying-tax-after-someone-dies#:~:text=Beneficiaries%20inherit%20the%20assets%20at,was%20sold%20or%20given%20away.

Would this property impact their status as a first time buyer?

I am a property manager, we do full management so the run down on costs would be 15-20% management fee, any pre tenancy upgrades, yearly certification, marketing fees, inventory fees, LARN, continuous repair costs, We have a landlord who’s boiler has just went, that will be £2.5k. Another whose oven just broke, that £300. One with a massive flood that cost £10k. The costs are endless. If you aren’t able to pay for repairs of at least £500 each month, then I would not be letting out a property.

I think given they are both adults (in the legal sense before anyone starts talking about brain maturity at 25), it has to be clear that if it becomes a rental then it is 100% their responsibility, not yours. Otherwise there is the risk that they accrue all the benefits but you end up with the hassle/ having to get involved to ensure they're not terrible landlords, especially re. things like "oh I had this letter that all the flats need to pay 10k for external works but I already spent the rent on Oasis resale tickets" or " the tenant is saying that this needs doing but the agent says it's fine" or even just "replace vs repair" dilemmas.

You need legal advice on the options available. I'm not an expert but it may be possible to draw up a deed of variation to the will if they don't want to keep the property. This may have advantages in terms of benefitting from the LISA scheme.

It's obviously early days yet but get a good probate solicitor and explore the options with them.

I'm sorry for your loss.

Do you always make shit up? Are you a politician

Not sure if anyone's mentioned the service charges/maintenance fees on a leasehold property.

I imagine that will be quite substantial and the ongoing bills for Capital Works etc could well be eye-watering.

Sell and use the funds to buy where they prefer

How near to buying are your dc?

Because ideally this would be a deposit for their houses. If they like that idea, then it sounds great.

Thing is if you sell now and property prices suddenly shoot up, then they may not have enough to get a property. Of course if they fall, then they'll be quids in, but there's no guarantee.

And if they have the money, the temptation to just get things is there. Of course, that is their choice, but they may not want to have that choice immediately there. It's not as though they're going to get much interest on it currently!
However, there is a saving scheme where you can put a certain amount in each year and the government will pay you more if it's for a house deposit. If you sell, they might find that useful. Although thinking abut it, it is only for your first house deposit - you'd have to check if they inherited a place they would still be able to use that.

They are sensible to want to discuss it and have time to decide what they want to do. I agree that if the decision becomes to sell it, it will definitely be in their interests to have a deed of variation if needed so that it is sold from the estate and the proceeds distributed to them, otherwise they will no longer be first-time homeowners when they want to buy themselves - not only does that prevent them using government assistance schemes, they may miss out on reduced stamp duty or specialised bank products, depending on what exists at the time they want to buy.

Sell before the block needs serious work doing.

I would sell unless they want to live in it permanently or whilst at uni.

It’s just practical. What’s going to change if they don’t discuss it until after the funeral? Their relative isn’t going to get any less dead.

Interest rates are better now than they have been for a long time.

If they take the money rather than the flat they have an opportunity to invest it and educate themselves financially. In the unlikely event they want to be landlords they can do that with a property they have chosen for the purpose.

They also need to consider the difficulties of joint ownership. Do they get on? What if one wants to sell to realise funds for starting a business, moving abroad, buying their own place?

Rent and then sell, it's not a good time to be selling right now.

Are you sure the flat won’t need to be sold anyway to pay inheritance tax or is there enough liquidity in the estate to cover that?

Unless it’s in central London, a 60s high rise flat isn’t going to be worth enough to be subject to inheritance tax.

If they aren’t going to live in it I’d sell given their ages. It’ll be a nice deposit for their own place when the he time comes.

Get the executors to sell it, not the children. This will help them later.

Contrary to popular belief only a very small proportion of estates meet the IHT threshold but whether it does so will depend on the value of the whole estate and the deceased's circumstances (spouse, children etc), not on the value of the flat itself.