SDLTM09795 | SDLT - higher rates for additional dwellings: Condition C – interests inherited in the last three years - Para 16 Sch 4ZA FA2003

Following the death of an individual, the beneficiaries of their estate may become entitled to a major interest in a dwelling. The ways in which this might happen could be:

• where the personal representative transfers or appropriates the interest in satisfaction of a bequest of that particular dwelling,

• where the personal representative transfers or appropriates the interest in satisfaction of a pecuniary gift or an interest in residue, or

• under the law in another country, the deceased’s interest passes automatically to the beneficiary as an heir to the estate.

Where a person becomes entitled to such an interest in the three years before a chargeable transaction, the interest can be ignored for the purposes of determining whether the transaction is a higher rates transaction [Para 16(2)] provided that:

• the beneficiary became a joint owner of the interest by inheritance [Para 16(1)],

• the beneficiary and any spouse or civil partner’s combined interest has not exceeded half of the major interest in the three years before the effective date of the chargeable transaction [Para 16(4)].

Where an interest is held as a tenant in common, the declared interest held by the owner and their spouse or civil partner must be 50 per cent of the whole interest or less. Where an interest is held as joint tenants the owner and any spouse or civil partner who is a joint tenant must make up either strictly half, or a minority of the joint tenants.

If such an interest was inherited more than three years before the chargeable transaction, then it will count as an interest in another dwelling at the end of the day of the effective date of the chargeable transaction.

The date of the inheritance for these purposes is the date that the individual becomes entitled to the interest. An interest in an un-administered estate is not a major interest in land and so usually the date the individual acquired the interest is the date the interest is transferred or appropriated to them. Although, see Capital Gains Manual at CG30700 onwards for the situation where the residue of an estate has been ascertained and the personal representative holds the residue of the estate for the beneficiary absolutely.

In jurisdictions where property devolves directly on heirs, the date of inheritance will be the date of death.

Example

Two brothers (Mr A & Mr J) recently inherited their parents’ house, each owning a 50% share. Mr A owns no other property at present but is in the process of purchasing a flat, which will be his main residence.

The higher rates will not apply to the purchase of the new property by Mr A on account of the inherited interest, provided that this is purchased within 3 years of inheriting the property, and during that 3 year period the interest held by Mr A in the inherited property, together with any interest held by his spouse or civil partner, does not exceed 50%.