If you’re a real estate investor, chances are you’ve encountered opportunities to purchase probate properties. These properties can present excellent investment prospects, but the probate process can be tricky to navigate without the right guidance. In this blog, we’ll break down the key steps and considerations for dealing with probate properties, ensuring you approach them with confidence.
What is probate?
Probate is the legal process of administering a deceased person’s estate, ensuring their debts are paid, and any remaining assets are distributed according to their will (or the rules of intestacy if there is no will). If real estate is part of the estate, it often requires special attention because of its value and legal implications.
Key steps in the probate process for properties
1. Understanding ownership status
Before making any decisions, it’s important to establish how the property was owned. In the UK, there are two main forms of property ownership:
- Sole ownership: If the property was owned solely by the deceased, it will form part of their estate and need to go through probate.
- Joint ownership: If the property was jointly owned, the situation depends on the type of joint ownership:
- Joint tenancy: The property automatically passes to the surviving owner(s), bypassing probate.
- Tenancy in common: The deceased’s share becomes part of their estate and will be subject to probate.
2. Obtaining a grant of probate or letters of administration
To deal with probate properties, the executor of the will (or an administrator if there is no will) must apply for a grant of probate or letters of administration. This legal document gives them the authority to sell, transfer, or manage the property.
In the UK, the cost of applying for probate is £300 if the estate is worth more than £5,000, and there’s no fee if the estate is valued below this threshold.
3. Valuing the property
A proper valuation of the property is crucial, not just for sale purposes but also for calculating inheritance tax (IHT). IHT is charged at 40% on the estate’s value above the current threshold of £325,000 (or up to £500,000 if the residence nil-rate band applies).
It’s worth noting that the valuation process can become more complex if the estate includes multiple beneficiaries or debts. This is where professional advice can help ensure accuracy and compliance with tax laws.
4. Dealing with inheritance tax
If inheritance tax is due, it must be paid before the property can be sold or transferred. HMRC requires at least some payment within six months of the date of death, so planning is essential. If funds aren’t readily available, there are options to pay IHT in instalments, particularly for property assets.
Considerations for investors purchasing probate properties
1. Conduct thorough due diligence
Probate properties are often sold “as is,” which means they may require significant repairs or renovations. Be prepared to investigate the property’s condition, legal status, and any liabilities attached to it, such as unpaid mortgages or council tax arrears.
2. Understand the timeline
The probate process can take several months – or even over a year in some cases – depending on the complexity of the estate. This can delay your ability to complete the purchase and begin any development or rental plans. Factoring in potential delays is key to managing your cash flow and project timelines.
3. Consider auction purchases
Many probate properties are sold at auction, which can be a fast and efficient way to secure a deal. However, auction purchases require you to have your finances and legal arrangements in place upfront, as completion often happens within 28 days of a successful bid.
4. Engage professionals early
Whether you’re buying or selling, having the right professionals on your side can save time and money. Solicitors experienced in probate law, surveyors for accurate valuations, and accountants to advise on tax implications can all make the process smoother.
How we can help
At Wells Associates, we understand that dealing with probate properties involves balancing legal, financial, and emotional factors. Whether you’re an executor managing an estate or an investor exploring opportunities, we’re here to provide tailored advice and support.
From calculating inheritance tax liabilities to helping you structure your investment in the most tax-efficient way, we’re ready to guide you through each step. Our team can also assist with property valuations, liaising with HMRC, and handling the complexities of estate administration.
Final thoughts
Probate properties can be a worthwhile opportunity for real estate investors, but understanding the process and potential pitfalls is essential. With careful planning and the right advice, you can make informed decisions that benefit both your portfolio and your peace of mind.
If you’d like to discuss any aspect of probate properties, feel free to get in touch. We’re always happy to help.