Do inherited shares under 50% stop the higher SDLT rates applying?

Introduction

A common SDLT problem arises where a buyer is purchasing a home to live in, but already owns a small share in another dwelling because of a family inheritance. Buyers often ask whether that inherited share means the 5% higher rates for additional dwellings must be paid, even though they have never bought a home before and are not replacing a main residence.

The answer depends on the detailed rules in Schedule 4ZA to the Finance Act 2003. In some cases, an inherited share is ignored for the higher rates test. The key questions are usually:

• how large the inherited share is;
• whether the share was acquired by inheritance;
• whether the purchase takes place within the relevant three-year period; and
• whether the buyer is claiming a relief, or relying on a statutory exception.

The Question

Two buyers are purchasing a dwelling for £1,350,000 as their main residence. It will be their first personal home purchase, but they are not first-time buyers for SDLT purposes because they already hold inherited interests in other residential property.

Each buyer has a one-third share in two dwellings. Those shares arose under a variation of a deceased family member’s estate, with another family member also holding a share. One of the dwellings is occupied by that family member as a home and the other is let out.

The concern is whether the buyers must pay the 5% higher SDLT rates because they already own interests in other dwellings and are not selling a previous main residence. A further question is whether the inherited share exception applies where each buyer owns less than 50%, and if so, when the three-year period begins. There is also a practical filing point: whether any special SDLT relief code is needed on the return.

Nick’s Explanation

Nick’s view was that the starting point is Finance Act 2003, Schedule 4ZA, especially paragraph 3 and paragraph 16.

He explained that the higher rates normally apply if, at the effective date of the purchase, the buyer has a major interest in another dwelling and is not replacing a main residence. However, paragraph 16 can disapply that result where the other dwelling interest was inherited and the buyer’s beneficial share does not exceed 50%.

In anonymised form, his reasoning was:

• each buyer’s inherited share was one-third, so below the 50% threshold;
• the interests were acquired by inheritance;
• if the purchase takes place within three years of the relevant date of inheritance, those inherited shares are disregarded for the higher rates test; and
• this is not a separate SDLT relief with a code, but a legislative exception built into Schedule 4ZA.

Nick also drew an important distinction between a formal SDLT relief and a statutory exception. In his words, this is “not a relief and there is no exemption code to enter on the SDLT1 return”. Instead, the higher rates simply do not apply if paragraph 16 is satisfied.

The Law

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

Under paragraph 3, the higher rates can apply where, at the effective date of the transaction, the purchaser:

• has a major interest in another dwelling, and
• is not replacing their only or main residence.

For inherited property, paragraph 16 provides an important exception. In summary, it applies where:

• by virtue of an inheritance, a person becomes jointly entitled with one or more others to a major interest in a dwelling; and
• that person’s beneficial share does not exceed 50%.

If paragraph 16 applies, the inherited interest is ignored for the purposes of the higher rates test during the period of three years beginning with the date of the inheritance.

The 50% test is applied to the individual buyer’s beneficial share, not by aggregating the shares of connected family members for paragraph 16. So a one-third share held by one buyer is below the threshold, even if two siblings together hold more than 50% between them.

A separate practical point is that paragraph 16 is not one of the listed SDLT reliefs claimed by code on the SDLT return. It is a statutory exception to the higher rates rules. That means the return should be completed on the basis that the transaction is not an additional dwelling transaction, rather than by claiming a named relief code.

Analysis

Step 1: Do the buyers own interests in other dwellings?

Yes. Each buyer has a one-third interest in two dwellings. On the face of it, that raises the additional dwelling issue.

Step 2: Are they replacing a main residence?

On these facts, no. They are buying a home to occupy, but they are not selling an existing main residence of their own. So the usual replacement exception does not assist.

Step 3: Does paragraph 16 potentially apply?

Yes. The interests were inherited, held jointly with others, and each buyer’s beneficial share is one-third. That is below 50%.

Step 4: Is the 50% threshold tested individually or jointly?

Individually. Paragraph 16 asks whether the person’s beneficial share exceeds 50%. A one-third share for each buyer is therefore within the statutory limit.

Step 5: Was the interest acquired “by virtue of an inheritance”?

On the stated facts, yes. The interests arose through the administration of an estate and a deed of variation. That is consistent with the inherited-property exception in paragraph 16.

Step 6: Has the purchase taken place within three years of the date of inheritance?

That is the point which often causes difficulty. The legislation refers to “the date of the inheritance”, but does not spell out every factual variation. In practice, advisers may need to consider the estate paperwork, the deed of variation, any assent or appropriation, and the Land Registry position.

Nick’s view was that the relevant date was the date of registration at HM Land Registry, because that was the point at which the beneficial interest became legally enforceable in practical terms. On that approach, the three-year period ran from the registration date and the buyers were still within time.

That said, readers should recognise that this timing issue can be technical. In some matters, solicitors or counsel may want to examine whether the relevant event was the inheritance itself, an assent, an appropriation, or registration. The statutory exception is clear, but the exact start date can require close attention to the documents.

Step 7: Is there an SDLT relief code?

No specific relief code is needed for paragraph 16 because it is not a standalone relief. It is a legislative exception which means the higher rates do not apply if the statutory conditions are met. In practical terms, the return is completed on the basis that the transaction is residential property not subject to the additional dwelling rates, and any software note can explain that paragraph 16 applies.

Outcome

Where a buyer has inherited a share of 50% or less in another dwelling, and the purchase of the new home takes place within three years of the relevant inheritance date, paragraph 16 of Schedule 4ZA can mean that inherited share is ignored for the higher SDLT rates test.

On the facts described, a one-third inherited share for each buyer points strongly towards the higher rates not applying, provided the transaction falls within the three-year window and the inheritance analysis is correctly documented.

There is also no separate SDLT “exemption code” for this position. That is because the buyer is not claiming a listed relief. They are relying on a statutory exception in the higher rates rules.

Practical Steps

If you are assessing a similar case, the sensible next steps are:

• confirm the exact beneficial share held by each buyer in each inherited dwelling;
• check that each share does not exceed 50%;
• collect the estate documents, including the will, grant, deed of variation, assent or appropriation, and Land Registry evidence;
• identify the date from which the three-year period should be measured on the particular facts;
• ask the conveyancer to review paragraph 16 of Schedule 4ZA specifically, rather than looking only for a relief code;
• ensure the SDLT return is completed consistently with the statutory exception, with an explanatory note if the filing software allows one; and
• if there is any doubt about the timing point, obtain written tax advice before filing.

Where a case instead turns on whether a property was uninhabitable or not suitable for use as a dwelling, readers should be aware that the threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. That is a different route from the inherited share exception discussed here, but it is often raised in SDLT disputes and should not be assumed to be easy to establish.

Conclusion

An inherited share does not automatically trigger the higher SDLT rates. If each buyer inherited no more than a 50% beneficial share and buys within the three-year period in paragraph 16 of Schedule 4ZA, that inherited interest can be disregarded. In that situation, the higher rates may not apply at all, and no special SDLT relief code is required because this is a statutory exception, not a separate relief.

Legal References Used

• Finance Act 2003, Schedule 4ZA
• Finance Act 2003, Schedule 4ZA, paragraph 3
• 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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