Stamp duty on inherited property (Guide)

In this brief guide, we are going to discuss the Stamp duty on inherited property. If you have just inherited property then you may be concerned about stamp duty.

What is Stamp duty?

Stamp duty land tax (SDLT) is a tax you pay when you buy a property or receive an interest in a property. You will have to pay stamp duty if you buy a property worth more tha£125,000. Stamp duty is different in England, Scotland and Wales.

There are also first-time buyer stamp duty reliefs which reduce the amount of stamp duty land tax first-time buyers will have to pay if the home is less than £500,000.

If you buy an additional residential property worth more than £40,000 then you will have to pay stamp duty land tax on it even if the property is abroad.

You must send an SDLT return to HMRC and pay the tax within 14 days of completing on a home purchase.

Stamp duty on inherited property

You usually won’t have to pay Stamp Duty on inherited property but depending on your circumstances you may have to. You also won’t have to pay any Income Tax or Capital Gains Tax on inherited property but you may have to pay inheritance tax. You should seek financial advice on this but HM Revenue and Customs (HMRC) will contact you if you need to pay.

Cases where you may need to pay stamp duty on inherited property

The stamp duty you may need to pay would not be directly on the inherited property but it would be in any additional residential property which you purchase. The framework of the law states that if you inherit a major interest in a property and then go on to purchase a residential property within the same period you may be due stamp duty at the additional 3% rate.

The cases this could apply to are listed below:

First of all, what is a major interest in a property?

A major interest in a property could be 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.

If this occurs then the first thing to note is that you will no longer be eligible for the first time buyer stamp duty relief as you now own an interest in a property. You will automatically lose your first-time buyer status if you acquire shares in a property by buying them, through a gift or by inheriting them.

One way to avoid this liability and retain your first-time buyer stamp duty relief status would be to defer the inheritance of the property until you had purchased your residential home. This will in effect avoid you having to pay the additional rate 3% stamp duty charge.

There is also a framework which states that if you purchase a residential property within 3 years if inheriting a major interest in another property then that major interest can be ignored for the purpose of the 3% additional stamp duty charge 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.

To fit into this category you will need to inherit less than 50% of the shares in the property if you are purchasing a residential property within 3 years. Regardless of this, you will still not be able to claim the first-time buyer stamp duty relief.

Furthermore, if you choose to purchase your residential property more than 3 years after you acquired a major interest which was less than 50% of the shares in another property due to an inheritance then the 3% additional stamp duty rate will apply if your share in the inherited property is worth more than £40,000.

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.

When are the three years counted from?

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 interest in an un-administered estate is not a major interest. You could then, in essence, increase the time before the three years kicks into effect but beware, HM revenue will likely insist and argue for early closure.

FAQs about stamp duty on inherited property

Below are the most frequently asked questions about stamp duty on inherited property.

In this brief guide, we discussed the stamp duty on inherited property. If you have any questions or comments please let us know in the comments section below. This is not financial or legal advice so ensure you seek suitable stamp duty legal and financial advice.

If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.

You can also contact the debt charity “Step Change” if you are in debt and need help.