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).

Do you feel emotionally attached to either?
Do your DH or DC have a preference?
Are your memories of the family home good?
Which one better matches your idea of what makes a house desirable? Different for all but mine would be light, trees, green, reasonably private garden, good flow, quiet.
If the family home has been untouched for a while would it better be worth doing kitchens, bathrooms etc?
I would certainly sell one, clear mortgage, spend money on the other and invest the remainder.
You could sell both and buy something bigger or different of course.

What does your ideal home look like? Is it your current home? If so, sell the inherited property, pay off the mortgage, do whatever work you want to do and put the rest in investments/pensions/childrens' future.

If your current home isn't perfect, then would combining the value of both homes buy you one that is?

There are 3 main options:

1. Stay were you are, sell the inherited house, pay off the mortgage and improve your current home/invest the leftover money;
2. Sell both properties and buy one for £675k+, either leaving the mortgage as it is or extending it, if you can afford more; or
3. Sell both properties and buy one for £575k giving you a bigger and better home and a mortgage free lifestyle.

Of course there are options between these too.

It really depends on where your current home is on the scale between your perfect home and being totally unsuitable.

What does your gut tell you you should do?

Sell both and buy a bigger house?

Capital gains tax is most definitely a thing on a second home, plus if you have a bad tenant or a long void you will lose money. Plus rental income will be liable for tax. It can go very wrong plus legislation means you need to get a property up to scratch with various changes. I doubt either would meet the new standards set out for rental properties. I considered buying a property years ago to let out, I was a University housing officer liable for the Universities properties and not the private sector but saw just how wrong things could go for private landlords.

Sell both and buy a place you would enjoy more

So, with the information you added recently, it sounds like for you the best option would be to sell them both and then buy a larger home for yourselves.

As has already been said, there is no 'one' answer - it depends on so many things in your lives.

Would people completely up sticks and relocate for a different way of life? This is what DH wants, children are up for it, but it’s only been 4 months since I inherited (so CGT would be minimal) but I can’t afford to keep running 2 houses while I make up my mind.
And it’s so helpful to see all the different opinions. Thank you all

Sounds like you aren't particularly excited by the prospect of living in your childhood home and it isn't really an improvement on your current home. Therefore detach yourself from the fact that you have inherited a house, and just think about it in terms of having inherited about 350K, minus a few costs.

What's the best way to spend that 350k? Given the young age of your children and the fact that you are "squeezed" into your current home and it isn't your dream home, then it sounds like a good way to spend that money is to use it to buy a bigger house, combined with the equity from your own house. You may or may not choose to go mortgage free, depending on your judgement of how much a really nice house is worth to you versus the cost of the mortgage.

Or you could spend (some of?) the money on other things you want. Or you could invest (some of?) it for the income. But tbh it sounds like it would be worth it to you to use it on a bigger home rather than have the income. If you want to invest it, keeping it in the property to rent it out might be the best option, but it's fairly unlikely, unless there is a particularly high return to renting out properties of that type in your area. There are a lot of costs associated with renting out properties and it's not particularly tax efficient. Probably better off gradually transferring into a pension or something.

I wouldn't keep it for the kids. There's no reason to think that house would either be they house they want, or be the best way to invest the money for them in the meantime.

But it's not a thing if they sell either or both house now.

Well it obviously is life changing to her if that's how she is describing it. Being able to buy a bigger house that she considers a dream house and have no mortgage would be life changing for alot of people!

If you’re not ready to decide, move into inherited property to make it your primary residence and prevent CGT building up, sell your own, hopefully earn some interest on the proceeds, and take some time to decide what you want to do.

No I'm pretty sure it makes no difference. There would be no CGT to be paid on either if they are sold now.

I’d sell both and buy a bigger one, but go mortgage free - so maybe £500-£600k on a new house.

Yes, yes I would.
A quieter pace of life, mortgage free. I would aim to have a job ready prior to move though, even if it's part time, I don't like to leave any opportunity for vulnerability.

I wouldn't rush though, in your situation i would want a lifestyle change incorporated with relocating so would spend time researching the area I would like to move to.

Sell both and buy a ‘dream house’ 👍🏻

So much depends on other aspects of your situation. How is your pension looking? Is your marriage solid? Are you both happy in your jobs? When do you want to retire? How will you fund uni for your 2 younger kids?

Personally, I would always want to put some into a pension and ensure I/we had a good 'oh fuck' fund in case of redundancy/ill health. Once that was covered I'd probably look at buying a larger property mortgage free if I was in your position.

So much depends on other aspects of your situation. How is your pension looking? Is your marriage solid? Are you both happy in your jobs? When do you want to retire? How will you fund uni for your 2 younger kids?

Personally, I would always want to put some into a pension and ensure I/we had a good 'oh fuck' fund in case of redundancy/ill health. Once that was covered I'd probably look at buying a larger property mortgage free if I was in your position.

I would suggest you sell the inherited house now while you consider further as to whether you want to remain living where you are or to move.

Presumably if you do move house for somewhere larger you don't need to move far, and you can always downsize again in future if you need to release some capital for your retirement - although of course you will be paying out in solicitors' fees and moving expenses each time you do move.

I'm glad that you are up on capital gains tax and not relying on MN to advise you 🙄

Sell both. Buy a bigger house but keep some back for treats and holidays over the next few years.

Get your solicitor who is handling the probate of the estate to advise you regarding any potential tax implications. Consider the fact you need about the same amount of money behind you as your home is worth to be able to upkeep it as you get older.
To run two houses costs two of every darn utilities bill going and you might get a nasty shock with council tax depending on the area. Check that as well.
Get advise from an independent financial advisor. they should listen to what you hope to achieve, look at your assets and advise as if your aims are achievable or pie in the sky. BTWsold the house we had, moved to parents on inheritance based on tax and becuase the garden is awesome. Still having repairs done to said house but DH happy to be here.

Unless you are very emotionally invested in your childhood home, there is no rational reason to keep it. And even if you did, and moved into it and sold your current place, you would be taking your DC out of their (early) childhood home.

Put another way, you could ask yourself: If I had inherited £350k in cash, and I saw that the house was for sale, would I buy it, either to live in instead of our current one or as BTL? If not, then there's your answer.

What you then do with the money is up to you. Pay off the mortgage, put £40k in the rainy day fund (or blow the same £40k on a couple of fab holidays) and put the rest in moderate risk investments, whatever you want. Just don't put it into a pension (because you're not getting a tax break on it) — but if you want to increase your contributions to your pension from your salary, knowing that you have cash elsewhere, then by all means do that.

Being a landlord is a lot of hassle and the rent is tax as income. Depending on rental prices in your area you might be able to get a similar or better return investing the capital with a lot less hassle. If you feed it into ISAs over time returns would be tax free.

We upped and relocated before kids then again when they were still at school.

If your house isn’t currently big enough
Sell both and buy one that is without a mortgage

We spent inheritance on student rentals. We can live off the rent when we retire and leave the properties to our kids. So another thought.

sell both houses. then you will have £575,000 in cash. buy a new house that will suit you for the next 10-20 years - big garden, more rooms etc. Maybe a £450K house?

Keep the rest of the money in investments (low cost ETFs) so it will grow to be a house deposit for the kids one day.

once you have no mortgage, you can also save more each month and/or have better holidays.

I wouldn't move to a completely new area unless you have a good reason. but can you find a larger house within your current area?

I would rent out the inheritance house. Put the money into your pension scheme for your future, incase, and the extra can go towards nice holidays for the both of you. Your husband, in UK law, has a say in your inheritance but it is your future also.