SDLT on inherited property?

[lilbopeep]

Hi,
I wonder if anyone can help advise myself and my siblings regarding SDLT on inherited property. I will try to keep it brief, but there are some complications! Apologies in advance for the essay!

Our Dad died, leaving Sibling C as the sole benefactor and executor of his estate. Sibling C felt that the only right thing to do was to redistribute the estate equally between all 3 children. However, Dad was insistent that the flat should remain in the family.

It was decided that sibling C would keep the flat, releasing equity to siblings A & B via a deed of variation. Sibling C's solicitor pointed out that Sibling C was taking a risk by having an additional mortgage, and the amount of equity to be released to Siblings A & B takes this into account.

The solicitor then advised that C would be liable to SDLT by doing a deed of variation, and suggested keeping the flat in C's name, with C releasing the monies to A & B via a gift.

However, Sibling A lives abroad, and would be liable to tax of c£15,600 by doing this (as the gift is from a sibling, if the gift is from a parent A is not liable to tax - which I believe would be the case if a deed of Variation is done).

Probate was granted with the property being valued at £312,000. HMRC investigated this as the value was low for the road - but the house is in a bad state, and accepted the valuation. When C applied for a mortgage, it transpired that the house was un-mortgageable due to the length of time left on the lease. The property was then revalued at £250,000. An application for a rebate on IHT has been made as this brings the estate below the threshold.

As a family we want to do whatever makes the most financial sense - and here is where the SDLT query comes in.

From reading other threads on here it seems that if C did the Deed of Variation, and then "bought out" A & B - C should only be liable to 2/3 of the SDLT (C is not a first time buyer) - so @£312k SDLT = £7,700, @£250k SDLT = £5,883, rather than the full amount (£14,960 and £10,000 respectively).

Neither of C’s solicitors (probate & conveyancing) not his accountant seem prepared to advise how much SDLT is due, (with the added complication of not knowing which value will be used to calculate it) and we are running out of time to get things done.

Any advice will be gratefully received

Many thanks in advance
Bo

[sandy2000]

If you get land or property under the terms of a will, there’s no need to tell HMRC and you won’t pay SDLT. This applies even if you take on an outstanding mortgage on the property on the date the person died.

Since there is no SDLT on property left in the will to sibling C, There is no sense in doing a DoV.
Whoever advised to do a DoV is doing a dis-service.
If C wants to compensate other siblings out his goodness - he can make a gift to his siblings out of his own "wealth" - now that C would be more well-off because of this inheritance.

[bd6759]

If C wants to compensate other siblings out his goodness - he can make a gift to his siblings out of his own "wealth" - now that C would be more well-off because of this inheritance.

Yes, but the question says that gift tax would be payable on the gift to A. The question is whether SDLT would be less than the gift tax.

The computation of the SDLT is correct. Although, if you are all family and trust each other, a variation to give 2/3 to C and 1/3 to A. The cost of buying out A's third would be below the SDLT threshold, and B could be gifted his third.

[lilbopeep]

Many Thanks for the replies,
BD6559 is correct in that the DoV is due to A being liable to tax on a gift of that value from a sibling.

BD6759 - this makes lots of sense - I hadn't quit managed to push it along this far... Thank you!

The computation of the SDLT is correct. Although, if you are all family and trust each other, a variation to give 2/3 to C and 1/3 to A. The cost of buying out A's third would be below the SDLT threshold, and B could be gifted his third

Am I right in thinking that the only con of doing it this way is that, the gift from C to B will effectively remain part of his estate for the next 7 years?

Many thanks

[lilbopeep]

Also, just to double check - is SDLT @3% due on a 2nd property up to the £125k threshold? - so, the SDLT on 1/3 of the property is minimal (ie c£2,400 - 3,120 on the figures previously mentioned) rather than none - which still makes this the better option...

Thanks
Bo

[bd6759]

Both those staments are correct.

[lilbopeep]

Many thanks bd6759, much appreciated