SDLT 3% surcharge on inherited properties

Posted by Alison Craggs on
The 3% stamp duty land tax (SDLT) surcharge can now apply to additional residential properties including those inherited.  

Let us take the example of Kirstie, who is in the process of purchasing her first property, a one bed flat in Oxford, for £250,000, when her friend Phil dies and leaves in his Will a specific gift of his house in London. This is transferred to her from the estate before she completes on the Oxford flat. Will she have to pay the additional 3% SDLT charge on her Oxford flat purchase?

The answer is yes. The legislation provides that if a beneficiary inherits a major interest in a property and the beneficiary then purchases another residential property the additional 3% SDLT charge will apply. A major interest is when:

  • the deceased leaves their property as a specific gift and it is 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.

Would it have made a difference if Kirstie completed on the purchase of the Oxford flat before the London property is transferred to her from the estate?

Yes, if the administration is not complete. This may be used as part of tax planning, because this way round, the additional 3% SDLT charge would not apply.

Would it have made a difference if Phil had specifically gifted in his Will his London house equally between Kirstie and her friend Sarah?

Yes. The legislation provides that if within three years of inheriting the interest you purchase a residential property, then that interest can be ignored 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 exceeded half of the major interest in those three years.

As Kirstie inherits only 50% of the London property and within three years of her inheritance purchases the Oxford flat, the additional 3% SDLT will not apply.

What if Kirstie decides to pull out of the Oxford flat purchase and look again at matters in three years’ time?

If she purchases the Oxford flat more than 3 years after inheriting a minor (50% or less) share in the London property then the additional 3% SDLT charge will apply, if her share in the London property is then worth £40,000 or more.

The three years is counted from the date the beneficiary becomes entitled to the interest. Usually this would be the date the property is transferred to the beneficiary.

The executors may be able to delay the administration of the estate because an interest in an un-administered estate is not a major interest. Kirstie would therefore extend the three year period of grace, although the Revenue would generally argue for early closure.

For further information…

The additional 3% SDLT charge can catch transactions which might not have been expected to be caught. For further information on estate planning please contact Alison Craggs or for SDLT advice, please contact John Shallcross.

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.

About the Authors

Photograph of Alison Craggs

Alison advises clients on the best structure for their Wills and prepares powers of attorney and administers estates. 

Alison Craggs
Email Alison
01865 254209

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Photograph of John Shallcross

John is an experienced real estate Lawyer with a background in agricultural and landed estate property work. He has also developed a specialisation as an adviser on the stamp duty land tax implications of property transactions.

John Shallcross
Email John
023 8085 7469

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