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Stamp Duty On Inherited Property

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Inheriting a property can bring a lot of questions. Do you need to pay stamp duty on an inherited property? Is it subject to capital gains tax?

Do you have to pay inheritance tax? And how do you sell it?

Other complexities come with inheriting a property. You may need to think about how it affects your status as a first-time buyer. There are also tax implications when you jointly own an inherited property with siblings.

Inheriting a property is often a difficult time, emotionally. The tough situation is made worse when you have to consider the tax implications.

We’ve put together this guide to help answer the most common questions about stamp duty and tax on inherited property.

If you’re looking for something specific, like whether you pay stamp duty on jointly owned inherited property, use the menu below to navigate the article. Otherwise, keep reading for the full guide.

Table of Contents

What is Stamp Duty? 

Stamp Duty Land Tax (SDLT) is a one-time tax that must be paid if you buy property or land valued above a certain price in England, Wales and Northern Ireland.

The rate of stamp duty varies depending on the property price and type. It also changes if you are a first-time buyer if you own one or multiple properties, or if the property is residential or commercial.

Stamp duty charges have fluctuated in the past few years. To spur the housing market, the government initiated a Stamp Duty Holiday during the COVID-19 pandemic. Rates are now back to what they were before. You can find the stamp duty rates listed below.

Property or lease premium

SDLT Rate

Up to £125,000

0%

The next £125,000 

2%

The next £675,000 

5%

The next £575,000

10%

Everything over £1.5 million

12%

The vast majority of homeowners in the UK will be subject to the following rates. However, if you are purchasing an additional residential property which will make you the owner of more than one property in the UK, you will usually have to pay an additional 3% Stamp Duty Land Tax (SDLT).

This tax applies once the property value surpasses £40,000. The rates of Stamp Duty on additional properties are shown below. 

Property or lease premium 

SDLT Rate

Up to £125,000 

3%

The next £125,000 

5%

The next £675,000 

8%

The next £575,000

12%

Everything over £1.5 million

15%

These Stamp Duty rates are applicable if you reside in England and Northern Ireland. Scotland and Wales have different rates, known as Land and Building Transactions Tax (LBTT) in Scotland and Land Transaction Tax (LTT) in Wales.

Do I need to pay Stamp Duty on inherited property? 

You don’t need to pay Stamp Duty Land Tax when you inherit a home. However, inheriting a property could have an impact on Stamp Duty and other taxes related to future house purchases, as well as tax allowances you may be eligible for.

Below, we’ll outline some of these scenarios and discuss the Stamp Duty and tax implications of inheriting a property. 

Am I still a first time buyer if I inherit a property? 

To help first-time buyers get on the property ladder, the government introduced a discount on Stamp Duty for them.

This discount, known as ‘First Time Buyer Relief’, can be found on the government website. In short, if the property is worth less than £300,000, no Stamp Duty needs to be paid.

If the value lies between £300,000 and £500,000, then first-time buyers will pay Stamp Duty at 5%, which is a reduction of £5,000. However, if the property is worth more than £500,000, no relief is available, and Stamp Duty must be paid at the normal rate.

So, to answer the initial question – am I still a ‘first-time buyer’ if I inherit a property and therefore qualify for the relief? The answer is no. If one owns over 50% of a property they have inherited, they will not benefit from the First Time Buyer Relief.

In fact, as long as their ownership of the property is more than 50%, they will have to pay a higher rate of tax on any additional property they buy. 

If your ownership of the property is 50% or less, and you buy an extra property within three years of inheriting, you won’t have to pay higher rates of Stamp Duty. However, you won’t be eligible for first-time buyer relief.

Stamp Duty On Inherited Property
It's important to keep HMRC informed of which property is your main residence. This is critical for determining whether you must pay Capital Gains Tax on your inherited property. 

Do I pay Stamp Duty on jointly owned inherited property? 

You aren’t responsible for paying Stamp Duty if the property you have inherited is jointly owned. However, this answer may change if you want to purchase the other party’s shares in the property.

If that is the case, then you will be liable to pay Stamp Duty on the amount you are paying.

For example, if you have inherited 50% of a property worth £360,000 and you plan to buy the other 50%, you will be liable to pay Stamp Duty on £180,000. This changes if you already own a property, in which case you will have to pay the higher rate of Stamp Duty.

But, if you are going to move into the inherited house and sell your current home, then you can apply for a refund of the higher rate of Stamp Duty within three months of the sale. 

Do I pay capital gains tax when I sell an inherited property? 

If the property you have inherited isn’t your main residence and increases in value when you sell it, you must pay Capital Gains Tax (CGT). This tax only applies to the increase in value since you inherited the property up to the date of sale.

It’s important to keep HMRC informed of which property is your main residence. This is critical for determining whether you must pay Capital Gains Tax on your inherited property. 

Do I pay inheritance tax on inherited property? 

Whether or not you have to pay Inheritance Tax on a property will depend on both the value of the property you have inherited and the value of the rest of the deceased’s estate.

Generally, if the value of the estate (including the property) exceeds £325,000, you will have to pay 40% Inheritance Tax on anything above that amount.

However, there are some exemptions and exceptions to this rule. For example, if the property is the main residence and is being passed on to a direct descendent, the tax rate is reduced.

This is known as the ‘Main Residence Nil Rate Band’ and the value of this band in the 2020/21 tax year is £175,000. This amount will remain frozen until April 2026.

This means that theoretically, if there are no other assets in the estate, you could inherit a property up to £500,000 without having to pay Inheritance Tax.

You can reduce the amount of inheritance tax you pay on a property by sharing inheritance tax allowances between spouses.

For instance, if one of your parents has died and did not use their inheritance tax allowance, they can pass it on to their spouse.

This means that when the surviving spouse passes away, they can transfer two sets of inheritance tax allowance to the beneficiary. If it is a direct descendant and the property is the main residence, it can be passed on with no inheritance tax – even if its value is £1,000,000.

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