Do I pay higher stamp duty if I move after inheriting another home?

My mum died recently leaving the family home to me and my older brother. He has been living there for several years, since my mum had a stroke and went into a nursing home.

He wants to stay in the property, and I am okay with that, as my wife and I do not really need my share of the equity in the property right now. 

He is on the verge of retirement and cannot afford to buy us out, but if he pays for the maintenance of the property, we would be fine with him staying there. It would be a sort of nest-egg for us.

However, my wife and I will soon be looking to sell our flat and move into a bigger property.

If we do this, will we be subject to the second-home stamp duty surcharge on the place we buy because of my share in the family home? 

If so, is there any way of getting around this? We do not want to move in there.

Laura Kearns, a solicitor in the private client team at Royds Withy King, replies: Higher rates of stamp duty. Stamp duty on second homes. The 3 per cent surcharge. 

All these phrases refer to the increase in stamp duty rates introduced in April 2016 for individuals buying additional residential properties.

Prior to April 2016, stamp duty rates applying to all residential property purchases by an individual were as follows:

However, from 1 April 2016 there are now two tiers of stamp duty rates applicable to residential property purchases, dependent on whether the purchaser (or a related person) already owns a ‘major interest in a dwelling’.

If the purchaser does own a major interest in another dwelling and the new purchase is not replacing his/her main residence, the following stamp duty rates now apply: 

You’ve recently inherited a share of your late mother’s house and are worried that this will mean you and your wife will now have to pay the higher rates of stamp duty when you buy your next property.

The first question to ask is whether an inherited property counts as a ‘major interest in dwelling’.

The starting point is that the inherited property will count as an interest in a major dwelling and therefore an additional property for the purposes of the 3 per cent surcharge if:

1. The value of your interest in the house is at least £40,000; and

2. that interest is not reversionary on a lease which has an unexpired term of more than 21 years.

However, it is not all bad news. The higher stamp duty rates do not apply if an individual is replacing his/her only or main residence. 

If, therefore, you and your wife sell your flat before purchasing the new property, you will simply pay the ‘normal’ stamp duty rates on the new property purchase.

If you don’t manage to sell the flat before buying the new property, you will pay the higher rates upfront, but provided you then sell the flat within three years of the new purchase, you can apply to HMRC for a refund of the additional amount paid.

Although not relevant in your specific circumstances, it might also be helpful to mention that there is a specific caveat in the legislation for individuals who jointly inherit property. 

It says that the inherited property can be ignored for the purposes of the higher stamp duty rates, despite being a major interest in a dwelling, provided that:

1. the beneficiary became a joint owner of the interest by inheritance;

2. the combined interest of the beneficiary and his/her spouse or civil partner does not exceed 50 per cent of the property; and

3. the beneficiary purchases a new property within three years of inheriting.

This caveat would be helpful if, for example, you and your wife did not currently own a property but were looking to buy one for the first time. 

In those circumstances, you would not be replacing your only or main residence. However, provided you bought a property within three years of inheriting your 50 per cent share of your late mother’s house, you and your wife would not have to pay the higher rates of stamp duty on the purchase.

If, however, your interest in your late mother’s property exceeded 50 per cent and/or you completed on the new property more than three years after inheriting, you would be liable to pay the higher stamp duty rates.

The three-year period starts running from the date the beneficiary becomes entitled to the interest. 

Typically, this would be the date the property is actually transferred to the beneficiary. It may therefore in certain circumstances be possible for the executors to delay the administration of an estate in order to extend the three-year period.

Finally, it should also be noted that whilst there is a specific exemption from the higher rates where property is jointly inherited, it would however disqualify the individual from benefitting from first-time buyer stamp duty rates. 

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