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A Complete Guide to Stamp Duty Relief for Probate Properties

Published by Simran Baniya
Posted Date: July 9, 2024 , Modified Date: July 16, 2024

In the ever-evolving landscape of property trading, staying ahead of the curve requires strategic thinking and keen eye for opportunity. One such opportunity lies in the often-overlooked market of probate properties.

Stamp Duty Land Tax (SDLT) is a tax applied to the purchase of land and properties above a specified threshold in England and Northern Ireland. The tax is calculated on a ‘slice basis,’ meaning that different portions of the property’s price are taxed at progressively higher rates. In the context of property trading, especially involving probate properties, understanding SDLT relief mechanisms is crucial. Proper knowledge of SDLT rates, reliefs, and specific rules regarding probate properties can enhance financial planning for property traders. After mastering the intricacies of SDLT, property traders can turn potential tax liabilities into strategic advantages. Here is everything you need to know about the Relief.

What is Probate?

Probate is a legal right to deal with deceased person’s property, money, and their possessions. The properties that are left behind by the deceased person is referred to as ‘estate’ and the term probate is referred to as “estate administration.” During the process, the assets of the deceased person are formally transferred to their new owners.

Who can Apply for Probate?

Only certain people can apply for the probate and who are those certain people depends on whether there is a will:

a)

Executors/Personal Representatives:

If there is will, executors named in it can apply. As a personal representative (an executor or administrator) are legally responsible for the money, property, and possession of the person who died (the ‘estate’).

b)

Close Relatives or Family:

If the person did not leave a will, the most entitled person can apply to become the administrator of the estate. This is the closest living relative, normally the husband, wife or civil partner followed by children over 18.

What is Probate Property Under SDLT Relief?

When someone dies the “estate” that they have left behind comes under the understanding of probate properties. As an amendment to the Finance Act 2003 (the "Act"), through the insertion of Schedule 6A, relief for certain acquisitions of residential property are made available. The term ‘residential property’ refers to a building that is used or suitable for use as a dwelling. Additionally, any garden, grounds, building, or structure related to the property will be treated as residential. The use to which property is put, its quality, length, and circumstances, will determine the outcome.

What is Probate Relief in SDLT?

Under Paragraph 3 Schedule 6A of the Act it states the provision regarding the acquisition by a property trader from the personal representative. There is 100% relief on SDLT that would have been otherwise payable. A property trader means a company, limited liability partnership and partnership whose members are all companies or limited liability partnership that carries out the business of buying and selling properties as per SDLTM21010.

Probate Relief in SDLT - Stamp duty for probate properties

The relief are not available to sole traders, individuals, or individuals in partnership.

What is the Condition for Applying Probate Relief?

If a property trader purchases a property from the executors, or personal representatives of a deceased individual, it will be exempt from Stamp Duty, if all the following conditions met:

A)

If the acquisition is made in the course of a business that consists of, or includes, acquired dwelling not for the investment purpose but the business activity should be trading properties.

B)

If the deceased person occupied the dwelling as their main or only residence within the two years before their passing.

C)

If the property trader does not intend to:

  • to spend more than the permitted amount on refurbishment of the dwelling
  • to grant a lease or licence of the dwelling
  • to permit any of its principal or employee or any person connected with any of its principal or employees to occupy the dwelling.

D)

The area of land acquired does not exceed the ‘permitted area.’

If all the above conditions met, the purchaser is eligible for full SDLT relief. If all conditions except the one regarding the permitted area are satisfied, then the purchaser is eligible for partial relief.

Example 1,

Sarah is a personal representative of her deceased uncle who lived in the property, as his only residence, for years before he passed away. Sarah wants to sell her uncle’s estate of 0.4 hectare after his death. The property is valued at £350,000. A property trader named Max Traders Ltd is interested in the estate. The company wants to sell the property after refurbishment. Normally, if the Max Traders were to purchase a property of this value, the company would have to pay £15,500 SDLT based on the following SDLT calculation.

Property or lease premium or transfer value

SDLT Rates

SDLT Calculation without MDR

Up to £250,000

3%

£250,000*3% = £7500

£250,000 to £925,000

8%

£100,000*8% = £8,000

Total SDLT


£15,500

However, Max Trader is buying the property from Sarah, the personal representative of the deceased person, the purchased property’s area is within legal limit, and it intends to refurbish and sell the estate, therefore is eligible for the Probate Relief subject to other conditions. Max Traders is subject to total relief under the Probate Relief.

Hence, Max Trader made a saving of £15,500.

Stamp Duty Land Tax (SDLT) Calculator

Calculate your UK Stamp Duty Land Tax (SDLT) easily and accurately. Get instant results for residential and commercial properties.

What is Partial Relief Under Probate Relief?

When the acquired property exceeds the permitted area limit, but the first two conditions mentioned above are met, partial relief can be claimed for the acquisition:

  • The ‘permitted area’ in relation to dwelling should include site of the dwelling of 0.5 of hectare.
  • If partial relief is claimed, the amount paid for the acquisition becomes chargeable consideration.
  • The amount of chargeable consideration is the difference between the market value of the permitted area and the market value of the total area.

Example 2,

Following on the Example:1 If the property, Sarah’s uncle owned was 1-hectare plot, including the site of a dwelling. For Max Traders Ltd the acquisition would become chargeable. The acquisition amount would have been chargeable on the difference between the market value of the permitted area and the market value of the property.

If the market value of the property including all the land and the building was £1.5million and the market value of the permitted area (0.5 hectares) was assessed at £500,000.

To calculate how much amount would be chargeable for the Max Trader Ltd, we need to find the difference between the market value of the property and the total market value of the permitted area.

Chargeable Consideration = Total market value of the property - Market value of permitted area.

So, Max Traders Ltd will be paying the SDLT on the chargeable consideration of £1,000,000.

Can the Relief be Withdrawn?

The relief provided can be withdrawn by HMRC if the property trader performs the following things:

  • If the property trader spends more than the permitted amount on refurbishment of the dwelling. The permitted amount allowed for refurbishments is either £10,000 or 5% of the acquisition price, whichever is greater with a maximum cap of £20,000. Here, the meaning of the refurbishment is improving and enhancing the value of the property and it does not include the work which is done to achieve minimum safety standard.
  • If the property trade grants a lease or licence of the dwelling.
  • If the property trader permits any of its principals or employees, or any person connected with any of its principals or employees, to occupy the dwelling.

In any of the mentioned situations, HMRC can investigate and potentially withdraw the relief. So, it is important for the property traders to ensure that the conditions for probate relief are constantly met and seek professional advice if there are any changes in circumstances.

Conclusion

SDLT often has varying rules depending on the context of the property, as well as buyers and sellers involved. In this regard, Probate Relief is invaluable for property traders, as it can reduce their tax burden. Concerning Probate Relief, it is essential for property traders to fully understand and comply with the conditions to avoid SDLT liabilities. By Leveraging probate relief, property traders can navigate complex transactions more effectively, thereby enhancing their overall efficiency and financial performance.

Frequently Asked Questions

Who qualifies for Probate Relief?

A property trader, engaged in buying and selling dwellings, if acquires a probate property from a personal representative, then property traders are qualified for the relief in such transactions.

When does Probate Relief Applies?

Probate relief applies when a property traders purchase a residential property form a personal representative of deceased person.

Are Probate Relief available for all types of probate properties?

No, probate relief only applies to residential properties.

How many years the deceased person must occupy the dwelling?

The deceased individual should have occupied the dwelling as their only or main residence at some time in the period of two years ending with the date of their death.

How do I apply for SDLT relief for a probate property?

You can apply for the relief by submitting the SDLT1 to the HMRC.

How does chargeable consideration after partial relief work?

The standard SDLT rate, as illustrated in the example 1, will be applied to the chargeable consideration.

Can property trading company registered outside UK claim probate relief?

Yes, the property trading company registered outside the UK can also claim for the relief.

Need expert advice on Stamp Duty Relief for Probate Properties?

Contact us today for efficient and
hassle-free assistance.

Simran Baniya
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