Do You Pay Stamp Duty on an Inherited Property?

Estimated reading time 6 minutes

Stamp duty is another one of the costs you must factor in when a property transaction is being undertaken. However, its value and its rules can make for some confusion among those looking to buy a new property.

Luckily, if you are inheriting a property, the stamp duty will not apply to you, meaning you can save a little cash towards other home projects you may have your eye on.

Inheriting a property is likely to come at a time when emotions are high and therefore, other important issues may get overlooked. Factors such as other taxes, your homebuyer status and any additional costs associated with the property may all fall to the back of your mind. This sometimes makes finalising the arrangements around an inherited property a little more complicated. With our guide, we hope to put your mind at ease and explain all you need to know about the inherited property rules and how stamp duty works.

What is stamp duty?

If you have not dealt with a property purchase before, there is a good chance the range of terminology may fill you with total confusion. You certainly aren’t alone. Even those that have purchased and sold many properties in the past have found themselves scratching their heads at various points, ensuring they understand everything they are reading.

Putting it simply, stamp duty is a tax paid when you purchase a property that is valued over a certain level. The type of property and the value will determine the amount of stamp duty required. In addition, your status as a buyer will also influence the level of SDLT. Whether you are a first-time buyer, someone buying multiple properties, or whether the property is for commercial or residential purposes, will also impact the amount of stamp duty you are required to pay.

What are the stamp duty rates?

Since the stamp duty holiday ended, the rates have returned to what they were before. That is not to say they will not fluctuate over time. At present they stand at the rates shown below:

Up to £125,000 0%
£125,001-£250,000 2%
£251,001-£925,000 5%
£925,001-£1.5million 10%
£1.5million+ 12%

The above are the rates for those owning one property, however, if you were to purchase another property, the rates would increase and start from a lower value of property. If the additional property is worth £40,000 or more, you will be liable for stamp duty on it. Typically, the stamp duty rate for a second home is 3% more than on your first property.

One thing to be aware of is that the rates only apply to England and Northern Ireland. In both Wales and Scotland, different rules are adhered to.

Do first-time buyers pay stamp duty?

In an effort to help get people onto the property ladder, stamp duty is not applicable on a property up to the value of £300,000 for first time buyers. However, if the property being purchased is valued from £300,001 up to £500,000 a rate of 5% will apply on the portion valued at that amount. Once the property exceeds £500,001, the stamp duty is applied at the standard rate.

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

Even though you are inheriting a property and not buying it, you will forego your first-time buyer discount on stamp duty when you go to purchase a house. Depending on your share of the inherited property you may find yourself paying either the second home rate for stamp duty or the standard rate. If the inherited property is more than 50% yours, then any house you wish to purchase will fall under the second home’s rate. If you own less than 50% you will pay the standard rates when you next acquire a property.

Are there any exceptions to inherited property stamp duty?

Yes, whilst you won’t pay any stamp duty on the inherited property, it largely depends on the stake owned. If 50% is owned by you and 50% by someone else, yet you wish to buy them out, you will be liable for the stamp duty on the value of that 50%.

If you decide to do this, it is worth noting that if you already own a home, you will be paying the second house rate of stamp duty when acquiring this property. However, if the plan is to sell your original house to move into the inherited property, you can be refunded on the higher value stamp duty once the move is complete. There is a deadline of 3 months with which to request the refund.

Do I pay any other taxes on inherited property?

Whilst stamp duty may not apply, there are still some other taxes you will be expected to pay when taking on an inherited property.

Capital Gains Tax (GCT)

Capital Gains Tax will be applicable when it comes to selling the house if the property has increased in value and was not your main residence. The amount of Capital Gains Tax to pay will be calculated from the amount the property value has increased since you inherited it.

Inheritance Tax

Much like stamp duty on properties that weren’t inherited, the value attributed to inheritance tax will be determined by the value of the property. Furthermore, the value of the rest of the deceased person’s estate will be factored in.

It is commonly worked out on the basis that if the estate, including property, is worth more than £325,000 then 40% inheritance tax is due on everything above that value. However, if the estate is worth this value and the property is the main residence and passed on to a direct descendant, the rate will be lowered.  This lower rate means that, as long as there are no other assets in the estate, a house worth £500,000 could be passed on with no inheritance tax needing to be paid.

Inheritance tax can be further lowered by putting two spousal allowances together. If one person had passed away but no inheritance tax allowance was used, it can be added to the other person’s allowance. This means that if the the beneficiary is a direct descendant and the property is the main residence, property worth £1million can be passed on with no inheritance tax.

Can I sell an inherited property?

You can but you will need to apply for probate. Until probate is granted, you will not be able to proceed with the house sale. Once granted, nothing is stopping you from listing the property on the market.

If you have inherited a property that has been granted probate and are looking to sell house fast, speak to the experts at Gaffsy. We work harder, to sell your property faster than any other estate agent. We buy any house for cash, meaning that there is no waiting around for chains to complete and no bumps in the road causing unnecessary delays. Reach out to us today and get a free cash offer. You could be selling faster than you thought possible!

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