What To Do If You Inherit a House With Tenants

There’s a lot you need to consider when you inherit a property.  Throw a couple of tenants into the mix, and voila - you have become a landlord overnight.  But is inheriting a property with tenants a dream or a nightmare?  

If you inherit a house with tenants, you have two options.  The first option is to keep the property and receive a rental income.  You will need to ensure you comply with the landlord responsibilities.  The second option is to sell the property, either with vacant possession or with the tenant in situ.  

But what are my responsibilities as a landlord?  And how do I sell a property with tenants in situ?  We answer these questions and more below…

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1. Option 1: Keep the property

What do you have to do if you inherit a property with a tenant and decide to keep the property and continue to rent it out?

First things first, you will need to notify the tenant of the change of landlord.  You should also inform the tenant of any new arrangements for future rent payments and discuss any alterations you’re looking to make to the tenancy agreement.

Once you have spoken with the tenant, you will need to provide them with a new statement of terms within 28 days.

Unfortunately, there’s not much you can do if the tenant refuses to sign your new tenancy agreement.  If this is the case, the terms of the old agreement will remain in force.

Is the property you have inherited your first rental property? As a landlord, you will have legal responsibilities and rules you must follow. You should spend some time familiarising yourself with your new obligations.

We have set out a couple of the key responsibilities you will need to follow as a landlord below…

1.1 What are my responsibilities as a landlord?

You will have a number of responsibilities and rules you must follow as a landlord, including:

• Keeping the property in good condition, safe and free from health hazards. This includes making repairs to the structure of the property, sanitary fittings such as a bath and heating/hot water systems.
• Ensuring all gas and electrical equipment is safely installed and maintained.
• Obtaining an Energy Performance Certificate (EPC).
• Protecting the deposit. You will need to ensure the tenant’s deposit is protected in a government-approved scheme.  The deposit must be protected within 30 days.
• Providing a “How to rent” checklist.  You must give your tenant a copy of the “How to rent” checklist when they start renting the property.
• Double checking your tenant has the right to rent the property. This rule only applies if the property is in England.

Please note that this list is not exhaustive (even though you may feel exhausted at the thought of it all)!  A good starting point if you are considering renting out the inherited property is gov.uk’s page on Renting out your property.

You should take out “landlord insurance” if you plan on renting the inherited property out.   This will protect you from the risks associated with renting out a property such as loss of rent and accidental damage (depending on the level of cover).    

2. Option 2: Sell the property

If you have inherited a property with tenants and decide to sell it, you have two options:

1. Sell the property with vacant possession.  You will need to follow the correct procedure to end the tenancy and evict the tenant if they refuse to leave.
2. Sell the property with tenants “in situ” (still living there).  

There are several things you should consider when deciding whether to sell with tenants in situ or with vacant possession.  We explore these below…

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My in-depth Ultimate Guide To Selling An Inherited Property also provides in-depth guidance for navigating your sale.

2.1 Selling with a tenant in situ vs vacant possession.

So how do you decide whether to sell with a tenant in situ or with vacant possession?

The first thing you should ask yourself is “is the property investor-friendly”?  If so, it might be a positive thing that the property is sold with a tenant in place if the tenant has a good history of paying rent on time.  

One of the worst scenarios for landlords is an empty house with bills to pay. Purchasing a property with a reliable tenant in situ can be appealing to potential investors as they would receive an instant rental income.  The investor would also save money on the need to ready the property for new tenants.

The important word to focus on here though is ‘reliable’.  If the tenants have had complaints from neighbours or have missed rent on more than a handful of occasions, this can put off potential investors and make the house difficult to sell.

Selling with a tenant in situ will also limit your potential buyer market to investors only.  If the property is in a popular area and has potential to be someone’s dream family home, you might be better off trying to end the tenancy and selling with vacant possession.

You should speak with a local estate agent to get their opinion on who the likely target market will be for your property. This will help you decide which route to take.  

2.2 How to sell with vacant possession

If you have inherited a property with a tenant and want to sell with vacant possession, you will need to follow the correct procedure to end the tenancy and evict the tenant if needed.

The procedure you will need to follow depends on the type of tenancy agreement and its terms.

You can read the Government's guide on the tenant eviction process here.

There can be serious consequences if you don’t follow the correct procedure.  If you are unsure which procedure you should follow to evict your tenant, you should obtain legal advice.  

Once you have successfully ended the tenancy (and evicted the tenant if required), the property will be empty and you can sell with “vacant possession”.

There are three ways to sell an inherited property with vacant possession:

1. Via a local estate agent – this option is likely to get you the best price for the property but can be very slow and unpredictable.  
2. Via auction – this option offers a good balance between price and speed and is likely to get you around 90% of the market value.  A sale by auction can typically be wrapped up within 8 weeks.
3. Via cash house buying company – this is the fastest way to sell your house and is likely to get you around 80% of the market value, with completion in as little as 2 weeks.  

2.3 How to sell with tenants in situ

If you decide to sell an inherited property with tenants in situ, communication is key.

Nightmare tenants can cause massive delays to a house sale.  You want to avoid causing any unnecessary friction by keeping a constant stream of communication between you and the tenant.  

We would recommend that you:

1. Offer the tenants the opportunity to purchase the property. Even if you don’t think the tenant is in a position to purchase the property, they will appreciate the offer.
2. Explain why you are selling the property before marketing the property. A tenant finding the house they are living in on Rightmove is likely to panic!  A little communication goes a long way.  The tenant will appreciate being kept in the loop before you proceed with marketing.
3. Reassure the tenants.  Let them know you are not evicting them, and their occupancy is most likely safe as the buyer will probably be an experienced landlord.
4. Organise viewings at a time to suit the tenants. Tenants have a right to quiet enjoyment and must receive at least 24 hours’ notice before a viewing.  

Viewings must be pre-approved with the tenant.  You must give at least 24 hours’ notice, otherwise the tenant can refuse entry.  

You need to be careful to try and schedule viewings at convenient times for the tenant, otherwise you may be in breach of their statutory right to live in quiet enjoyment.  It might be a good idea to schedule block viewings on one morning for example, rather than multiple viewings throughout the week.    

More paperwork!

Unfortunately, selling with a tenant in situ means more paperwork!  There are additional considerations and documents required to sell a tenanted property. When we sold tenanted properties in the past, we needed to include:

• The tenancy agreement.
• Rent receipts and bank statements to prove the rent was paid up to date.
• The tenant also needs to sign a document to acknowledge the sale. (Don't worry - solicitors took care of this bit).   

You can sell an inherited property with a tenant in situ via a local estate agent, auction or a house-buying company.  The main difference with selling with vacant possession is the limited buying market.  Expect to only receive offers from experienced landlords.

3. Do I have to pay any additional taxes if I inherit a property with tenants?

You might have to pay additional taxes if you inherit a property with tenants. The taxes you have to pay will depend on if you decide to sell or continue to rent the property out.

3.1 If you decide to sell the property

You will have to pay Capital Gains Tax (CGT) if you decide to sell the inherited property and you make a profit from the sale.  

CGT is payable on any amount you make above the value of the property when you inherited it, minus any allowable deductions.

Read our guide on Capital Gains Tax and inherited property here to find out more...

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3.2 If you decide to keep the property and rent it out

You may need to pay the following taxes if you keep the inherited property and rent it out:

• Income tax.  You must pay Income Tax on any profit you make (minus any expenses or allowances) from renting out an inherited property.  You will need to declare any taxable profits to HMRC.  Click here to find out how to report your taxable profits.
• Class 2 National Insurance. This would only be payable on an inherited property if you already run a property business with rental profits of £6,725+ per year.