Do you pay higher SDLT if you inherited 50% of a property years ago but cannot sell it because of a life interest?

Introduction

This is a common source of confusion for buyers who have inherited a share in a property but cannot occupy it, sell it or receive rent from it. The question usually comes up when they want to buy their own home and need to know whether the higher rates of Stamp Duty Land Tax (SDLT) for additional dwellings will apply.

The difficulty is that the SDLT rules do contain a special inheritance exception, but that exception is limited. Where the inheritance happened many years ago, the position can change. A life interest, occupation right or restriction on sale may feel important in practical terms, but it does not necessarily stop the inherited share from counting for SDLT purposes.

The Question

A buyer and their spouse want to purchase their first home together. One spouse has never previously bought a property, but the other inherited a 50% share in a dwelling from a parent many years ago. The inherited property is occupied by another person under a life interest or similar right, so the buyer cannot sell it now, cannot live in it and has never received rent from it.

The buyer wants to know whether that inherited 50% share means the purchase of their own home will be treated as the purchase of an additional dwelling for SDLT purposes, and whether first-time buyer treatment is lost.

Nick’s Explanation

Nick initially pointed to the inheritance rule in Schedule 4ZA to the Finance Act 2003. In anonymised form, his point was that where someone inherits no more than a 50% beneficial share in a dwelling, that interest is not treated as a relevant major interest for the additional dwelling rules during the first three years after the inheritance.

He quoted paragraph 16 of Schedule 4ZA, which says that a person who becomes jointly entitled to a major interest in a dwelling by inheritance, with a beneficial share not exceeding 50%, is not treated as having that major interest for the purposes of the higher rates during the three-year period beginning with the date of inheritance.

He then accepted the key point that had initially been missed: the inheritance in this scenario took place long ago, well outside that three-year period. That matters because the statutory protection is time-limited.

So the important takeaway from Nick’s explanation is this: the inheritance exception for a 50% or smaller share does exist, but it only shelters the buyer for three years from the date of inheritance. After that, the inherited share may count in the normal way.

The Law

The higher rates of SDLT for additional dwellings are contained in Schedule 4ZA to the Finance Act 2003.

Broadly, the higher rates can apply if, at the end of the day of the purchase, the buyer has a major interest in another dwelling worth £40,000 or more, and the new purchase is not a replacement of the buyer’s only or main residence.

The special inheritance rule appears in paragraph 16 of Schedule 4ZA. In summary:

• it applies where a person inherits a joint interest in a dwelling;
• their beneficial share must not exceed 50%;
• for three years from the date of inheritance, that inherited interest is ignored for the purposes of the higher rates test.

But paragraph 16 does not create a permanent exemption. Once the three-year period has passed, the inherited interest is no longer automatically ignored.

There is also a separate issue of first-time buyer relief. First-time buyer relief is only available if each purchaser is a first-time buyer and has never previously acquired a major interest in a dwelling anywhere in the world. An inherited interest can prevent first-time buyer relief, depending on the nature of the interest acquired.

Analysis

Step one is to identify what was inherited. If the buyer inherited a beneficial 50% share in a dwelling, that is potentially a major interest in a dwelling for SDLT purposes.

Step two is to consider the inheritance exception. If the share was inherited jointly and did not exceed 50%, paragraph 16 can switch off that interest for the higher rates test, but only for three years from the inheritance.

Step three is to apply the timing. If the inheritance happened many years ago, the paragraph 16 protection has expired. The buyer cannot rely on that exception simply because the share is still only 50%.

Step four is to ask whether the inherited interest still counts even though the buyer cannot sell, occupy or rent out the property because someone else has a life interest or right of occupation. In many cases, the answer is yes. SDLT looks at the legal and beneficial interests held at the effective date of the new purchase. Practical restrictions on sale do not automatically remove the interest from consideration.

Step five is to consider whether the purchase is replacing a main residence. If the buyer has never owned and occupied another property as their only or main residence, the replacement exception is unlikely to help. Buying a first home while already owning another qualifying interest usually means the higher rates are in point.

Step six is to consider the spouse rule. For higher rates purposes, spouses and civil partners living together are generally treated as one unit in important respects. So if one spouse owns a relevant interest in another dwelling, that can affect the SDLT position on a joint purchase.

Step seven is first-time buyer relief. Even if one buyer has never bought a home to live in, an earlier inherited major interest can still stop the couple from qualifying for first-time buyer relief on a joint purchase.

On these facts, the life interest and inability to sell are relevant background facts, but they do not themselves create a special SDLT exemption. The key statutory relief for inherited shares is the three-year rule in paragraph 16, and once that period has passed, the position becomes much less favourable.

This is also different from cases about whether a property is uninhabitable or not suitable for use as a dwelling. In that area, the threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. So even if a property cannot practically be occupied by the buyer, that does not mean it falls outside the dwelling rules.

Outcome

If a person inherited a 50% share in a dwelling more than three years ago, that inherited share is not automatically ignored for higher-rate SDLT purposes. If they then buy a home with their spouse, the purchase may be treated as the purchase of an additional dwelling, even if:

• they cannot sell the inherited property yet;
• they do not live there;
• they receive no rent from it; and
• another person has a life interest or occupation right.

On those facts, the higher rates are likely to be a real risk, and first-time buyer relief is also likely to be unavailable on a joint purchase.

Practical Steps

Anyone in this position should check the following before exchanging contracts:

• the exact beneficial share inherited;
• the date of inheritance;
• whether the inherited interest is worth at least £40,000;
• whether the buyer has ever owned another dwelling interest anywhere in the world;
• whether the new purchase could qualify as a replacement of a previous only or main residence;
• the precise terms of any life interest, trust or restriction on the title.

The trust deed, will, assent, Land Registry title and any related probate papers should be reviewed carefully. The SDLT answer often depends on the exact nature of the beneficial interest rather than on the practical fact that the property cannot presently be sold.

If there is any uncertainty, the SDLT position should be confirmed before completion, because the tax is assessed at the time of purchase and mistakes can be expensive to correct later.

Conclusion

A jointly inherited 50% share in a dwelling can be ignored for higher-rate SDLT purposes, but only for three years from the inheritance. After that, the inherited share may count in the normal way, even where a life interest prevents sale or occupation. For a buyer purchasing their own home many years later, the higher rates and loss of first-time buyer relief are both likely possibilities.

Legal References Used

• Finance Act 2003, Schedule 4ZA
• Finance Act 2003, Schedule 4ZA, paragraph 3
• Finance Act 2003, Schedule 4ZA, paragraph 6
• Finance Act 2003, Schedule 4ZA, paragraph 16
• Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799

This page was last updated on 22 March 2026.

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