SDLT 3% surcharge on inherited properties
Originally posted by Alison Craggs on 28 March 2017, updated 2 May 2018.
The 3% stamp duty land tax (SDLT) surcharge can now apply to additional residential properties and inherited properties can be relevant.
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 acquired 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.
[Note that the text above appeared as a bullet point, it should be as ordinary text, with amendments, as below.]
Kirstie does not count as a first time buyer for the purposes of the SDLT relief in effect from 22 November 2017 as she has “acquired” an interest in the inherited dwelling. A person is disqualified from being a first time buyer if they acquire a property (or a share in one) by gift or by inheritance as well as by purchase.
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. Also, Kirstie might well qualify for first time buyers' relief.
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 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 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. But, having inherited any share at all in a property is enough to disqualify her from being a first time buyer for SDLT purposes.
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 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. There are some complications with first time buyers’ relief. For more about that relief see HERE [link to document 9] 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.