Potentially life changing inheritance - wwyd?

[NotThatWise]

First time poster, apologies if I missed info or added too much detail.

I have recently inherited my childhood home, owned for 40 years, we are the only people to have ever owned it. House is mortgage free.

I’ll try and layout the facts, and I’m interested to know what other people would do in this situation. What would your future look like?

Childhood home value £350k
My home value £325k, £100k left on mortgage
Both houses are the same size in the same town.
DH (47) and I (43) plus 2 children (8 &12).

Not really it sounds like it’s under the iht threshold and there won’t be cgt payable now.

It will be more tax efficient to sell your current home and move onto the inherited home due to CGT rules

Do you have an emotional attachment to your childhood home ? Would you like to live there yourself? Does it need a lot of work doing on it ?

Personally I would be selling my parents' property, paying off my mortgage and saving/investing the majority of the rest of it.

You have 3 options:

1. Live in 1, rent out the other
2. Live in 1, sell the other and invest the proceeds either in long term investments or use to top up pensions
3. Sell both to fund “dream home”

Whilst you may love your childhood home, remember that it could feel strange/awkward for your husband to live there, so I’d only consider moving into that home if it was substantially better than your current house.

To inherit a property is life changing to the vast majority of people!

What tax are you talking about? It won’t be IHT

I don't think that's right about paying tax if you sell it.

My understanding is that inheritance tax is only paid if an inheritance exceeds the threshold and this would be whether it's sold or not. Capital gains tax is paid if there is an increase in price of the estimate given to the property as part of probate and what you actually sell it for.

Think very carefully about becoming a LL, it's nigh on impossible to get a bad tenant out and it's set to get much worse under labour. I'd sell one personally.

If you sell it further exact same value as probate value and/or haven’t used your cgt allowance then cgt might be zero or minimal. But most people would try to improve a property rather than sell it straight on.

www.gov.uk/tax-property-money-shares-you-inherit/property

If you keep both and use the rent from one to help pay to fund children through higher education be aware that if/when you do come to sell it, you may be liable for capital gains tax on the increase in value from date of inheritance and date of sale. A better option would be to use a deed of variation now which would mean you renounce the inheritance in favour of your children. When/if they subsequently sell it would be their own residence and therefore no capital gains tax to pay.

I would sell the inherited property and chuck as much as is allowed at pensions and S&S ISA. Then I’d retire earlier than age 60.

But I’m older than you (52) and my children are grown and already have 50k in premium bonds/LISAs to get on the property ladder if they want. So in your position I’d set some aside for your two children before putting money into pensions/S&S ISA.

I also think it’s important to enjoy some of the sale proceeds as well. A holiday, days out, champagne to toast your parents. Give each child £100 to splurge too.

If you love your childhood home and can’t be parted with it, keep it and rent one of them out.

Personally, I’d be inclined to sell both and buy a big lovely house with a smallish mortgage or mortgage free.

You don't necessarily get back what you've paid to update the property though as most people when buying a new house have their own ideas of how they would like their home to be.

I would sell my childhood home ( unless it's much nicer than my actual house) and then use the money to pay off the rest of my mortgage, have a holiday and save the rest for a healthy deposit for kids to get them on the property ladder when it's time.

I would sell the house with the mortgage, and move into the childhood home.

After fees etc., I’m assuming you’ll have about £200k left.

£120k to get two rental flats mortgage free. All income into investments to fund further rental properties.

Max out your pension contributions, get a good SIPP. If needs be, use some of the rental income to boost your pension each year. Use some to improve your home, get a better car if needed, take a holiday.

Assuming you're happy in your current house, I would:
Sell inherited house- 350k
Pay off mortgage - 250k left
Put 60k in pension this tax year - 190k left
Put 50k in a range of high interest savings accounts/ISA (20k max in this) as a rainy day fund not to be touched unless needed - 140k left
Spend 20k on family holiday somewhere really nice - 120k left
Spend up to 60k on house stuff- decor/garden etc - 60k left
Put 40k in pension in next tax year - 20k left
Keep that 20k in an easy access account and use over the next few years for fripperies to mle family life fun.

OR sell both houses and buy a new place for 500-600k mortgage free.

Assuming you are paying an equal amount into your mortgage, I would pay off your half after selling the inherited home, invest some, and put some into a SIPP so you can retire early.

This

If they’re married the inheritance is joint money

rent one of them out, as a long term investment ?

Gosh lots of replies, thank you all for taking the time to share your thoughts.
I’ll answer a few questions:
We have an older DC (21) who has used his inheritance to buy his first house and moves out in the next few months.
Both younger DC have £21k each inheritance (already accounted for)
Neither house can be improved, both are at their limit.
We are squeezed into our house, and both houses are 3 bed semis. Neither are our dream house.
There is no tax to pay.
Children are open to starting again somewhere new.

While I agree not life changing, if OP inherited recently, there will be no tax when selling it. And even if it was a few years ago there’s only tax to pay on the change in value from the last few years…

But I’d sell one, live mortgage free, have an expensive holiday and invest the rest for my retirement.

Have you asked your husband what he would like to do or what would be the best option ??

No, not this. It should be tax free to sell either if she recently inherited.

Choose the house you want to live in and sell the other. Or, sell both and buy your dream home.

We were in exactly this position 2 years ago when we inherited MILs house. We sold hers and spent some of the money doing up our own house. There was no mortgage on either property.

We did think about renting the other house (either long term, or as a holiday let) in case we wanted to use it later to move my elderly father nearer to us, and/or in case we wanted to downsize later. However, the anti-landlord policies of both the last Tory government and now the current Labour lot made it completely unviable.

Sell both and buy one that fits your needs better