HMRC SDLT: SDLTM09795 – SDLT – higher rates for additional dwellings: Condition C – interests inherited in the last three years – Para 16 Sch 4ZA FA2003

SDLT Higher Rates for Additional Dwellings

This section of the HMRC internal manual provides guidance on the higher rates of Stamp Duty Land Tax (SDLT) applicable to additional dwellings, specifically focusing on Condition C. It outlines the principles and concepts related to interests inherited within the last three years under Para 16 Sch 4ZA FA2003.

• Details the criteria for Condition C regarding inherited interests.
• Explains the implications for SDLT calculations.
• Clarifies the time frame of three years for inherited interests.
• Provides examples to illustrate the application of the rules.

SDLT – Higher Rates for Additional Dwellings: Condition C – Interests Inherited in the Last Three Years

Understanding Inheritance and SDLT

When someone passes away, their estate can be inherited by individuals known as beneficiaries. In the context of Stamp Duty Land Tax (SDLT), beneficiaries may gain a significant interest in a dwelling, which can affect the tax they need to pay when buying property. Below are some situations where this occurs:

– Transfer by Personal Representative: The personal representative of the estate may transfer the property to a beneficiary as part of fulfilling a will. For example:
– If the will specifies that a particular house should go to a family member.

– Pecuniary Gift or Residue: The representative may give the property to satisfy a cash gift or other remaining assets in the estate.

– Automatic Passing Under Law: In some countries, the law allows the deceased’s property to automatically pass to their heirs upon their death.

Special Rules for Recent Inheritance

If a beneficiary receives an interest in a dwelling within three years before they conduct a chargeable transaction (like buying another property), this inherited interest may not be counted for determining if higher SDLT rates apply. This is permitted by Para 16(2), and certain conditions must be met:

– Joint Ownership by Inheritance: The beneficiary and their spouse or civil partner must become joint owners of the inherited interest. This is stated in Para 16(1).

– Threshold on Combined Interest: The total interest held by the beneficiary and their spouse or civil partner in the inherited dwelling must not exceed 50% at any point in the three years prior to the property purchase. This is noted in Para 16(4).

Types of Ownership Explained

– Tenant in Common: If the interest is held as tenants in common, the combined declared interest of the owner and their partner must be 50% or less of the total interest.

– Joint Tenants: If the property is owned jointly, the owner and their partner must either make up exactly half or have a smaller share than half of all joint tenants.

Inheritance Timing and Its Effects

If a beneficiary inherits an interest more than three years before they buy a new property, this interest will be considered a separate dwelling when they purchase.

– Date of Inheritance: This date marks when the beneficiary became entitled to the interest.

– Un-Administered Estates: Normally, an interest in an estate that has not been managed is not considered a significant interest in land until it is formally transferred to the beneficiary.

For more guidance on inherited estates, refer to the Capital Gains Manual at CG30700 onwards.

In places where property automatically transfers to heirs upon death, the key date is the date of death.

Example Situation

Consider two brothers, Mr A and Mr J, who recently inherited a house from their parents. Each brother holds a 50% ownership stake in the property.

– Mr A’s Plans: Mr A currently has no other properties but is purchasing a flat that he intends to make his primary residence.

According to the guidance, because Mr A inherited his share of the house within the last three years, the higher rates of SDLT will not apply to his new flat purchase, assuming that:

– He buys the flat within three years of inheriting the house.
– At that time, Mr A’s interest in the inherited property, along with any interest held by his spouse or civil partner, does not exceed 50%.

Key Takeaways About SDLT and Inherited Interests

– SDLT applies differently to individuals who inherit property versus those who do not.
– It is essential to understand the type of ownership and the ownership percentages involved to determine tax liabilities.
– The timing of the inheritance can significantly impact SDLT rates.

Following this guidance enables better understanding and planning when dealing with property inheritance and potential SDLT implications.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09795 – SDLT – higher rates for additional dwellings: Condition C – interests inherited in the last three years – Para 16 Sch 4ZA FA2003

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