Stamp Duty and Inherited Property

What Is Stamp Duty?

Stamp Duty Land Tax (SDLT) is a tax imposed on land transactions.

When Does Stamp Duty Apply?

A land transaction for the purposes of SDLT is defined as the ‘acquisition of a chargeable interest’ in land within England and Northern Ireland. The acquisition can be a legal interest (a right in a property), or an equitable interest (a beneficial right).

What Are The Stamp Duty Residential Property Rates?

SDLT is paid on increasing portions of the property price when you buy a residential property.

How much SDLT you pay will be dependent on where the property is, when you bought the property, how much you paid for the property, whether it is your only property or not, and whether you’re eligible for relief or an exemption.

The current SDLT rates in England and Northern Ireland are as follows:

Example

In January 2023 you purchase a residential property for £300,000. The SDLT you owe will be calculated as follows:

• 0% on the first £250,000 = £0.
• 5% on the final £50,000 = £2,500.
• Total SDLT = £2,500.

Can I Claim First-Time Buyer Stamp Duty Relief?

From September 2022 first-time buyers became exempt from SDLT on properties up to £425,000. First-time buyers who purchase a property up to £625,000 will pay no SDLT on the first £425,000, and 5% on the remaining amount.

A first-time buyer is defined as an individual who:

• Has not previously purchased a ‘major interest in a property’ (a freehold property or a leasehold property that has more than 21 years to run); and
• Has not previously acquired an equivalent interest in a property in a country outside England and Northern Ireland.

For the relief to apply, the conditions that must be satisfied are as follows:

• There must be a purchase of a major interest in a single property;
• The purchase price must not be more than £450,000 (for no SDLT payable);
• The purchase price must not be more than £625,000 (you will only pay SDLT on the amount over £425,000);
• The purchaser (or all of them if more than one) must be a first-time buyer who intends (or all intend) to occupy the property as their only or main residence;
• The purchaser(s) must be an individual;
• The new property to be purchased is situated in England or Northern Ireland;
• The transaction may not be linked with another land transaction;
  • Unless that land transaction consists of the garden or grounds of the property or an interest, or right over, land which benefits the property or garden/grounds.

Example

In January 2023 you purchase your first residential property for £600,000. The SDLT you owe will be calculated as follows:

• 0% on the first £425,000 = £0.
• 5% on the final £175,000 = £8,750.
• Total SDLT = £8,750.

I Have Inherited a Property. Do I Have to Pay Stamp Duty on That Inherited Property?

There is no SDLT payable on inheritance of a property as part of an estate. However, it is possible through inheriting a property that there could be disadvantageous SDLT consequences.

A person is disqualified from being a first-time buyer if they have acquired a property (or a share in one) by gift or by inheritance as well as by purchase. Legislation provides that if a beneficiary inherits a major interest in a property, and the beneficiary then goes on to purchase another residential property, that the additional 3% SDLT charge will apply.

A major interest is acquired when:

• The deceased leaves their property as a specific gift in their Will, and it is then transferred to the beneficiary;
• The property falls into the residue of the deceased’s estate and is transferred by the personal representatives to the beneficiary; or
• Under the law of another country, the deceased’s property passes automatically to the beneficiary as an heir to the estate.

Example

In January 2023 you are in the process of purchasing your first residential property for £400,000 when your friend dies and leaves in their Will a specific gift of their property to you. This property is transferred to you from the estate before you complete on the purchase of the property.

As you have now obtained a major interest in the inherited property, an additional 3% SDLT charge will apply when the second property is purchased.

However, if within three years of inheriting the interest you purchase a residential property, then that interest can be ignored for the purposes of the 3% surcharge if:

• The beneficiary became a joint owner of the interest by inheritance; and
• The beneficiary and any spouse or civil partner’s combined interest does not exceed half of the major interest in those three years.

Example

In January 2023 you are in the process of purchasing your first residential property for £400,000 when your friend dies and leaves in their Will a specific gift of their property to you and your brother jointly. This property is transferred to you and your brother from the estate before you complete on the purchase of the property.

As you have only inherited 50% of the property, and as you have purchased the property within three years of your inheritance, the additional 3% SDLT will not apply. But, having inherited a share in the property you will not hereafter qualify as a first-time buyer for the purposes of SDLT.

I Am Awaiting Inheritance of a Property, But I Want to Purchase My First House. Can I Still Qualify for First-Time Buyer Stamp Duty Relief?

If you are in the process of purchasing your first residential property, and during that time you are awaiting inheritance of another property, you may still qualify for first-time buyer’s relief if the estate administration concludes after your purchase. This is because you are deemed to have not yet become entitled to an interest in an un-administered estate.

Example

In January 2023 you are in the process of purchasing your first residential property for £400,000 when your friend dies and leaves in their Will a specific gift of their property. The administration is delayed, and you complete on the purchase of the property before you inherit the second property.

As a major interest in the inherited property was obtained after you completed on the first property, the additional 3% SDLT charge will not apply. You will be eligible for first-time buyer’s relief on the purchase, and you will be exempt from paying SDLT on the inherited property.

This blog is intended for general information purposes only and does not constitute legal or professional advice. Advice should be sought before proceeding with any transaction.