Does an interest under a will trust count for SDLT higher rates or first-time buyer relief?

Introduction

People often ask whether an inherited interest in a family home held through a will trust counts as property ownership for Stamp Duty Land Tax purposes. This matters because it can affect two common issues: whether the 5% higher rates for additional dwellings apply, and whether first-time buyer relief is lost.

The answer depends on the exact type of trust, the beneficiary’s interest under it, the size of the inherited share, and the timing of the purchase. In many will trust cases, the inherited share may be ignored for higher rates purposes for a limited period, but that does not necessarily preserve first-time buyer relief.

The Question

A parent died owning a half share in the family home as tenant in common. Under the will, that half share passed into a trust. The surviving spouse was given a right to live in the property for life, with power to sell and buy a replacement property. The children were trustees and were also entitled to the capital after the surviving spouse’s interest ends.

One child now wants to buy a first home after previously renting. Another child is selling an existing main residence and buying a new one on the same day. Neither owns any other property interests apart from the inherited trust interest. The questions are:

• Does the inherited trust interest make the first purchase a second property for SDLT higher rates purposes?
• Does it also prevent first-time buyer relief?
• When the other child replaces a main residence, does the inherited trust interest trigger the higher rates?

Nick’s Explanation

Nick’s reasoning was that the starting point is to identify the nature of the trust interest. Where a surviving spouse has a life interest or interest in possession, and the children hold the remainder interest, SDLT can treat certain trust beneficiaries as having an interest in the dwelling for higher rates purposes.

He explained, in substance, that if the inherited share is worth more than £40,000, it may count as an existing major interest unless a specific disregard applies. In this type of case, the key disregard is the inherited share rule in Schedule 4ZA paragraph 16 Finance Act 2003. Where a person inherits a share in a dwelling and that share does not exceed 50%, it is disregarded for higher rates purposes for three years from the date of inheritance.

Nick also drew an important distinction between higher rates and first-time buyer relief. Even if the inherited share is ignored for higher rates purposes during that three-year period, that does not automatically mean the buyer remains a first-time buyer for relief purposes. The first-time buyer rules have their own conditions.

On the replacement of a main residence, his view was that the inherited trust interest should not trigger higher rates where the buyer is disposing of an old main residence and acquiring a new one in a qualifying replacement transaction, even if the inherited share would otherwise be relevant.

The Law

SDLT is charged on land transactions under the Finance Act 2003.

• Section 48 Finance Act 2003 defines a chargeable interest broadly.
• Schedule 4ZA Finance Act 2003 contains the rules for higher rates on additional dwellings.
• Schedule 6ZA Finance Act 2003 contains first-time buyer relief.

For higher rates, an individual purchaser is generally charged the additional rates if, at the end of the day of the transaction, they own a major interest in another dwelling worth £40,000 or more and they are not replacing their only or main residence.

Schedule 4ZA includes special rules for trust interests. In some cases, a beneficiary under a settlement is treated as having the interest held on trust. The exact treatment depends on the beneficiary’s rights under the trust.

There is also a specific inheritance disregard. Under Schedule 4ZA, paragraph 16, where a person inherits a share in a dwelling and that share is 50% or less, that inherited share is disregarded for higher rates purposes for three years beginning with the date of inheritance.

For first-time buyer relief, the test is different. Broadly, relief is only available if the buyer has never previously acquired a major interest in a dwelling anywhere in the world. The legislation does not simply import the Schedule 4ZA inheritance disregard into Schedule 6ZA.

Analysis

The analysis usually breaks down into four steps.

First, identify what the beneficiary has inherited. In a typical will trust of this kind, the surviving spouse has an interest in possession or life interest, usually including the right to occupy the property and sometimes the right to require a sale and replacement purchase. The children then hold the remainder interest in the trust capital. Whether that remainder interest amounts to a relevant property interest for SDLT depends on the statutory trust rules and the precise drafting of the will.

Second, consider the higher rates rules. If the child’s inherited interest is treated as a major interest in a dwelling worth more than £40,000, it could in principle count as ownership of another dwelling. However, if the inherited share is no more than 50%, paragraph 16 of Schedule 4ZA can disregard it for three years from the date of inheritance.

In the scenario described, each child’s economic entitlement is to part of the deceased parent’s half share, so each child’s share of the whole property is below 50%. That means the inherited share disregard is likely to apply for higher rates purposes for the first three years after death.

Third, consider first-time buyer relief separately. This is where many people are caught out. A person may escape higher rates because of the inheritance disregard, but still fail the first-time buyer test if they have previously acquired a major interest in a dwelling. The legislation for first-time buyer relief is stricter and does not contain the same disregard. So if the inherited trust interest amounts to previous ownership of a major interest, first-time buyer relief is likely to be unavailable.

Fourth, consider whether the transaction is a replacement of a main residence. If a buyer is selling an existing only or main residence and buying a new one on the same day, the replacement rules in Schedule 4ZA can prevent the higher rates from applying. In that case, even if the inherited trust interest would otherwise count, the purchase can still fall outside the higher rates because the buyer is replacing a main residence.

Applying those steps here:

• For the child buying a first home after renting, the inherited share will usually be ignored for higher rates purposes if the purchase happens within three years of the parent’s death and the inherited share does not exceed 50%.
• If the purchase happens after that three-year period, the disregard may no longer apply. If the inherited trust interest is then treated as a major interest worth more than £40,000, the purchase could be an additional dwelling and attract the higher rates.
• First-time buyer relief is a separate question. Even within the three-year period, the inherited trust interest may still mean the buyer is not a first-time buyer for Schedule 6ZA purposes.
• For the child selling one main residence and buying another on the same day, the replacement of main residence rules should normally prevent the higher rates from applying.

If any part of the analysis turns on whether a dwelling is uninhabitable or not suitable for use, the threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. Minor disrepair, dated condition, or the need for refurbishment will usually not be enough.

Outcome

The practical position is usually as follows:

• A child buying a first home may avoid the 5% higher rates if the inherited trust share is 50% or less and the purchase is within three years of the inheritance.
• That same child may still lose first-time buyer relief if the inherited trust interest counts as previous ownership of a major interest in a dwelling.
• A child who is selling an existing main residence and buying a new one on the same day will usually not pay the higher rates, because the transaction is a replacement of a main residence.

Practical Steps

To assess the position properly, a buyer should check:

• the exact wording of the will and trust provisions;
• whether the surviving spouse has an interest in possession or life interest;
• the date of death, because this starts the three-year inheritance disregard period in Schedule 4ZA paragraph 16;
• the value of the inherited share, to see whether it exceeds the £40,000 threshold;
• whether the buyer is replacing an only or main residence;
• whether first-time buyer relief is being claimed, since that requires a separate analysis.

It is also sensible to ensure the SDLT return reflects the correct position, including any declaration relevant to existing interests and any claim based on replacement of a main residence.

Conclusion

An inherited interest under a will trust can affect SDLT, but not always in the same way. A share inherited on death of 50% or less is often ignored for higher rates purposes for three years, but that does not necessarily preserve first-time buyer relief. Where a buyer is replacing a main residence, the higher rates will often still be switched off.

Legal References Used

• Finance Act 2003, section 48
• Finance Act 2003, Schedule 4ZA
• Finance Act 2003, Schedule 4ZA, paragraph 3(6)
• Finance Act 2003, Schedule 4ZA, paragraph 11
• Finance Act 2003, Schedule 4ZA, paragraph 16
• Finance Act 2003, Schedule 6ZA
• Finance Act 2003, Schedule 6ZA, paragraph 6
• 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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