Stamp Duty Guide

Stamp duty and inherited property

Stamp duty is one of the most commonly misunderstood areas when it comes to inherited property. Many people worry about whether they will need to pay stamp duty when they inherit, while others are unsure how owning an inherited property affects their tax position going forward.

This guide explains how Stamp Duty Land Tax (SDLT) works in relation to inherited property in England and Northern Ireland, covering everything from the basics of inheriting to the implications for future property purchases.

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Do you pay stamp duty when inheriting a property?

The short answer is no. You do not pay Stamp Duty Land Tax when you inherit a property. This applies whether you inherit the entire property or just a share of it, and it applies whether the property passes to you through a will or under the intestacy rules (which apply when someone dies without a will).

The reason is straightforward - SDLT is a tax on property transactions, specifically on purchases. When you inherit a property, you are not buying it. There is no sale, no purchase price, and no exchange of contracts. The property is transferred to you as part of the deceased's estate, and this type of transfer is exempt from stamp duty.

It is worth noting that Inheritance Tax (IHT) may be due on the estate as a whole, but this is a completely separate tax from stamp duty. IHT is calculated on the total value of the deceased's estate and is paid by the estate before assets are distributed to beneficiaries. It is not a tax that you pay when receiving the property.

This exemption from stamp duty is one small piece of good news during what is often a very difficult time. However, there are other stamp duty implications of inheriting property that you should be aware of, which we cover below.

Do buyers pay stamp duty on probate properties?

Yes - if you are buying a property that is being sold as part of a probate estate, you pay stamp duty in exactly the same way as any other property purchase. The fact that the seller is an executor or administrator selling on behalf of an estate makes no difference to your SDLT liability as the buyer.

The standard SDLT rates apply based on the purchase price. As of the current tax year, there is no SDLT on the first portion of a residential property purchase for most buyers, with rates increasing in bands above that threshold. First-time buyer relief may apply if you meet the eligibility criteria.

Some buyers assume that because a probate property may be priced below market value, there might be a stamp duty advantage. While a lower purchase price does mean less stamp duty in absolute terms, there is no special rate or exemption for buying probate properties. The SDLT is calculated purely on the price you pay.

Stamp duty if you already own a property

This is where things can get more complex for people who have inherited property. Under the current SDLT rules, if you buy a residential property and you already own another residential property (including an inherited one), you may need to pay an additional 3% surcharge on top of the standard SDLT rates. This surcharge applies to each band of the purchase price.

For example, if you inherited your parents' house and then decided to buy a new home for yourself while still owning the inherited property, you could face the additional 3% surcharge on your new purchase. On a property costing several hundred thousand pounds, this can add a significant amount to your stamp duty bill.

However, there is an important exception. If you are replacing your main residence and you sell your previous main residence within 36 months of buying the new one, you can claim a refund of the 3% surcharge. This does not apply to the inherited property - it applies to the property you lived in as your main home.

The practical takeaway is this: if you have inherited a property and are planning to buy another home, selling the inherited property before completing your new purchase could save you thousands of pounds in stamp duty. This is one of the many reasons families choose to sell inherited properties quickly rather than holding onto them.

Inheriting a share - does it count as a second property?

This is a question many beneficiaries ask, and the answer depends on the size of the share you inherit. Under HMRC's rules, if you inherit a share of a property that is worth 50% or more of the property's total value, it counts as owning an additional property for SDLT surcharge purposes.

If your inherited share is less than 50%, it does not count as an additional property, and it should not trigger the 3% surcharge if you go on to buy another home. This means that if you and three siblings each inherit a 25% share of a property, none of you would be affected by the surcharge rules purely because of the inheritance.

However, if you inherit a 50% share or more, the inherited property will count as an additional property. In that case, if you buy another residential property while still holding your share of the inherited one, you will face the 3% surcharge on the new purchase.

It is worth bearing in mind that these thresholds are based on your share of the property's value at the time of your new purchase, not at the time of inheritance. If other beneficiaries have transferred their shares to you since the inheritance, increasing your ownership above 50%, the surcharge rules would apply.

How inheritance affects your stamp duty position

The most important thing to understand is that while inheriting a property itself does not attract stamp duty, owning an inherited property can increase the stamp duty you pay on future property purchases. This is the area where most people get caught out.

If you are a first-time buyer and you inherit a property (or a share of 50% or more), you lose your first-time buyer status for SDLT purposes. This means you would not be eligible for the first-time buyer relief on your next purchase, which could cost you several thousand pounds in additional stamp duty.

For existing homeowners, inheriting a property means you own two residential properties. If you sell your current home and buy a new one while still owning the inherited property, the 3% surcharge will apply to your new purchase. You could claim a refund if you sell the inherited property within 36 months, but only if the new purchase is replacing your main residence.

The simplest way to avoid these complications is to sell the inherited property before making any new property purchases. A quick cash sale can help you clear the inherited property from your portfolio, ensuring your next purchase is not subject to the additional surcharge.

We always recommend seeking professional tax advice for your specific situation. Stamp duty rules can be complex and the financial implications are significant. A qualified solicitor or tax adviser can help you understand exactly how your inheritance affects your stamp duty position.

Frequently Asked Questions

Common questions about stamp duty and inherited property

Stamp duty rules can feel overwhelming, especially when you are already dealing with the stress of an inheritance. Here are clear answers to the most common questions.

Yes. If you are buying a property that is being sold as part of a probate estate, the normal Stamp Duty Land Tax (SDLT) rules apply to you as the buyer. The fact that the property is a probate sale does not give you any exemption or discount on stamp duty. You pay SDLT based on the purchase price in the same way as any other residential property purchase. If you already own another property, you may also be liable for the additional 3% surcharge for second homes.

No. When you inherit a property through a will or under the rules of intestacy, you do not pay stamp duty. This is because inheriting a property is not a purchase - there is no transaction, no exchange of money, and no contract of sale. The property passes to you as a beneficiary of the estate. Inheritance Tax may be due on the estate, but that is a separate matter handled during the probate process and is not the same as stamp duty.

Yes, it can. If you inherit a property (or a share of a property worth 40% or more) and you already own your main residence, or if you later buy another property while still owning the inherited one, you could be liable for the additional 3% stamp duty surcharge on the new purchase. The inherited property is treated as an additional property for SDLT purposes. However, if you sell the inherited property before completing on a new purchase, the surcharge would not apply. There are also rules about replacing your main residence that may help in certain circumstances.

If you inherit a share of a property and then buy out the other beneficiaries' shares, you may need to pay stamp duty on the amount you pay for their shares. However, there are exemptions in some cases - for example, if the property is transferred between spouses or civil partners as part of a divorce settlement. The rules around partial inheritance and subsequent buyouts can be complex, and the SDLT treatment depends on the specific structure of the transaction. It is worth getting professional advice from a solicitor or tax adviser before proceeding.

No. Inheriting a property does not attract stamp duty because it is not a purchase. Stamp Duty Land Tax is only charged on property transactions where there is a buyer and a consideration (payment). When you inherit, the property transfers to you as a gift from the estate, so there is no SDLT to pay. However, you should be aware that owning an inherited property can affect your stamp duty position if you go on to buy another property in the future, as the inherited property may count as an additional property for surcharge purposes.

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