Inherited Property & SDLT

Overview

When someone dies, their property may pass to beneficiaries through a will or, if there is no will, under the rules of intestacy. In either case, the transfer of property from the deceased’s estate to the beneficiary is not subject to SDLT.^[1]

Similarly, gifts of property made during someone’s lifetime are generally exempt from SDLT when no consideration is given. However, there are important nuances around mortgages, connected persons, and the impact on future purchases.

Property Passing on Death (Probate)

When property is transferred from a deceased person’s estate to a beneficiary — whether named in a will or entitled under intestacy — the transfer is exempt from SDLT because:^[2]

• There is no chargeable consideration — the beneficiary does not pay for the property
• The transfer is effected by operation of law (through the probate process)
• No SDLT return needs to be filed

The personal representatives (executors or administrators) of the estate transfer the property to the beneficiary using an assent (form AS1 for registered land). This is not a “land transaction” for SDLT purposes.

Deeds of Variation

A deed of variation (also called a deed of family arrangement) allows beneficiaries to redirect their inheritance within 2 years of the death. For SDLT purposes:^[2]

• A variation made within 2 years of death is treated as if the property passed directly from the deceased to the new recipient
• The variation is therefore exempt from SDLT (no chargeable consideration)
• This is useful for tax planning where beneficiaries want to redirect property to other family members

If a variation is made more than 2 years after the date of death, it is treated as a normal transfer between the original beneficiary and the new recipient, and SDLT may apply.

Gifts of Property During Lifetime

A gift of property made during someone’s lifetime is generally exempt from SDLT where there is genuinely no chargeable consideration:^[2]

• A parent gifting a property to a child for nothing — exempt
• A transfer into joint names for no payment — generally exempt

However, SDLT may be payable if:

• The recipient assumes a mortgage — the outstanding mortgage counts as consideration
• The recipient makes any payment for the property (even a nominal sum above the relevant threshold)
• The transfer involves a connected company — special market-value rules may apply

Gifts with a Mortgage

The most common trap is gifts where the property carries an outstanding mortgage. If the recipient takes on the mortgage, SDLT is payable on the mortgage amount:

Impact on Higher-Rate Surcharge

Owning an inherited property can trigger the 5% higher-rate surcharge when you purchase another residential property. However, there are important exclusions:^[3]

• If you inherited a 50% share or less, the inherited property is disregarded for surcharge purposes
• If you inherited more than 50% (or the whole property), it counts as an additional dwelling, but you have a 36-month grace period from the date of inheritance
• If you sell or dispose of the inherited property within 36 months, the surcharge does not apply

Sales by Personal Representatives

If the personal representatives sell a property from the estate (rather than transferring it to a beneficiary), the buyer pays SDLT in the normal way. The personal representatives act as the seller, and the transaction follows standard SDLT rules based on the purchase price.

This is a different situation from a beneficiary inheriting the property — here, the buyer is an external purchaser paying market value.

Further Reading

• Transfers on Divorce & Separation — another common exempt transfer
• Higher Rates for Additional Dwellings — how inherited property affects the surcharge
• Residential SDLT Rates — rates that apply when SDLT is payable
• Trusts and SDLT — when property passes via a trust