When it comes to an inherited property, however, understanding your options and obligations can make the process much simpler for everyone involved. Bill Rawson, Chairman of the Rawson Property Group, shares his step-by-step guide.
Step 1: Assess any potential liabilities and check the title deed
“The first thing you need to understand when inheriting a property is that you might not be the only one with a claim to the asset,” says Rawson. “There may be outstanding bond payments, unpaid rates or utilities, or even a loan secured using the property as collateral, and those debts will need to be settled, either by the estate or by the beneficiary, before transfer takes place.”
The party responsible for settling any property-related debts may depend on the specifics detailed in the will, but Rawson recommends asking for all the relevant financials from the estate’s executor, regardless.
“It’s also important to check that the details on the title deed are correct,” he adds, “as errors here can lead to delays and complications with the transfer.”
Step 2: Book a valuation
Once you are aware of any liabilities relating to the property, and have confirmed that the title deed is in order, Rawson says your next step should be to book a professional property valuation and comparative market analysis.
“This is important for a few reasons. The most obvious is in the event that you decide to sell and need to know where to position the property on the market. The value of an inherited property on the day the title passes to the beneficiary also serves as its base cost for Capital Gains Tax purposes, so it’s vital that a figure is officially recorded.”
For beneficiaries who want to keep their inherited property, a valuation is also important as a way to ensure adequate home insurance and to assess potential rental returns.
Step 3: Get a home inspection
In addition to a valuation, Rawson strongly recommends beneficiaries have a home inspection performed, as serious maintenance issues may affect the viability of both keeping and selling an inherited home.
“A lot of older family homes require a fair amount of repair or renovation to bring them up to modern standards, which can be more of a financial burden than beneficiaries are willing to bear,” he says.
Step 4: Weigh up your options
Steps one through to three should give you a good idea of the real value and condition of your inherited property, and, together with some sound advice from an experience real estate agent, provide enough information to decide on moving in, selling or finding tenants.
“If you’re in any doubt, sit down with your estate agent and have an honest conversation about what you hope to get from the property,” Rawson advises. “Sometimes, sentimental value is more important than profit. Other times, a clean break is just easier from an emotional and financial point of view.”
Step 5: Fees, duties and tax
The costs involved in inheriting a property are often a concern for beneficiaries, but most should be covered by the estate, says Rawson.
“Conveyancing fees and transfer duties are typically paid by the estate, not the beneficiary,” he says, “so the only real cost – other than settling debt and doing maintenance and improvements – is if Capital Gains Tax applies.”
Luckily, under South African tax law, CGT only applies when the property is sold by the beneficiary, and is calculated based on the difference between the property’s present-day value and its value on the day it was inherited.
“If the property was valued at R3million when it was inherited, and sells for R3.2million a year later, the beneficiary only pays CGT on the R200 000 difference,” says Rawson. “If it’s a primary residence at the time of sale, there’s a further R2million exemption, otherwise the annual CGT exemption of R40k applies.”
Inheriting a property may have its complications, but it’s also wonderful legacy to receive. With a little bit of help and advice from the right professionals, the process can and should be relatively pain free.