Stamp on 50% of inherited property

[adelewis]

Hopefully a quick one....

I have inherited 50% of a property and would like to buy the other beneficiary out.

There is not sufficient value in the remaining estate to do a deed of variation and there would need to be a cash transaction (that would be mortgaged).

Property is worth c. £525k.

There is no IHT.

If I were to buy the other beneficiary out of the house for £262k - would that be subject to Stamp Duty?

If it is subject to stamp, is Stamp rate based on the consideration i.e. the £262 or the value of the property?

Thanks for any advice.

A

[maths]

SDLT is based on actual consideration.

[pqtaxation]

Maths’ answer to your question as you posed is of course correct.

But the SDLT of 3% on £262k consideration is ca. £8k and would not payable if you were to inherit all of the property.

It sounds as though the property in this case could be the family home and your co-beneficiary may be your sibling.

If your co-beneficiary, who would otherwise inherit the other 50% of the property, and you have total confidence in each other and he/she is willing to help you then it may be possible to mitigate that not inconsiderable “SDLT penalty” by for example executing a deed of variation so you inherit all of the property, you refinance it, you gift the £262k to the former co-beneficiary as a PET (and take out life insurance in trust to pay the incremental IHT payable of up to ca. £100k = 40% * £262k if you were to die within 7 years). The additional costs of the deed of variation and of your taking out 7 year term life insurance (assuming you are in good health) should be much less than ca £8k and the executor’s solicitor could complete the transfer to you once you have arranged the mortgage financing. That solicitor could advise you and your co-operative co-beneficiary on such an approach. Just an idea -- a co-operative sibling and I recently pursued a similar approach in similar circumstances.

[maths]

I would not wish to pour water on any positive suggestion but doubt whether pqtaxation's suggestion would stand up to scrutiny.

A DoV, if backdating is required (which it would be), requires that no consideration is provided. It seems reasonably clear that such consideration is being provided ie in exchange for executing the DoV the a gift of cash is received in due course from the beneficiary of the DoV.

Such consideration is also likely to then be taken into account for SDLT purposes.

It is precisely for this reason that HMRC often ask whether discussions took place prior to the execution of the DoV and whether thereafter any transfers have been made from the "new" beneficiary to the "old" one.

[pqtaxation]

The requirement of IHTA 1984 S142(3) concerning payment of any consideration relating to an IofV is of course rightly raised by maths as an issue. The solicitor would advise adelewis (and his co-operating?? co-beneficiary) about it in the specific circumstances and wishes of the estate, executor, them and any other beneficiaries. Their joint decision may well be not to seek to avoid payment of SDLT for the reasons mentioned by maths.

From what adelewis wrote, most of the SDLT payable arises because the possible consideration at £262k is more than the £250k threshold at which value the level of duty increases to 3% from 1%.

£262 *3% = about £8k
£250*1% = £2.5k
Difference about £5.5.k

Hence the consideration for the part share of house would only have to be reduced by £12k to effect a saving of £5.5k

adelewis wrote there is not “sufficient value in the remainder of the estate to do a DofV” – but it’s not clear to me what that phrase precisely means. Presumably there were at least a few assets other than the house in the deceased’s estate. Changing the disposition of those other assets in the estate between the two co-beneficiaries by DofV might make possible the reduction to (say) 47.5% from 50% of adelewis co-beneficiary’s share of house without changing the overall value of each’s legacy. Another point for further review might be a possible discount applicable to the pro-rata value of a non-controlling share of 50% and under.

A further point could be the basis for the £525k open market value of the house. Presumably this is the probate value agreed between the executor and co-beneficiaries but, as no IHT is payable on the deceased’s estate, that value may be only a rough estimate that has not been discussed or agreed (ascertained) by HMRC. The mortgage valuation may be lower and that lower valuation could be adopted, possibly in conjunction with the previous points mentioned above.

Hence, after taking professional advice, adelewis and his co-operating (??) co-beneficiary may decide that there is scope for some cost effective partial mitigation, if not total avoidance, of SDLT payable.

[section 44]

Read Section 75A of the Finance Act 2003.

[maths]

section 44, do you mean s57AA?

[section 44]

No. Section 75A - it appears to be overlooked in several "enlightened" SDLT planning posts.

[maths]

Agreed; 75A 57AA what the hell !!!

[maths]

I am assuming in my comments below that you have not previously purchased another property. If this is correct then you may be able to avoid an SDLT charge on the 50% purchase to which you refer.

The newly introduced exemption from SDLT for “first time buyers” for consideration up to £250,000, inter alia, requires that:

“In this section “first-time buyer” means a person who— (a) has not previously been a purchaser in relation to a relevant acquisition of a major interest in land which consisted of or included residential property,
(b) has not previously acquired an equivalent interest in such land under the law of a territory outside the United Kingdom…….”.

The 50% of the property inherited is not a purchase; thus the purchase of the other 50% if £250,000 or less should not be subject to any SDLT charge.