Will I have to pay Stamp Duty?

TimmyLee73

My mother recently passed away. She has been divorced from my father for some years and in her Will she left her house to myself and my brother - 50% equal share. There is no mortgage remaining to pay on the property.

I'd like to move into my mother's house. My brother and I have agreed that I will buy out my brother's 50% share.

The house is worth £295K. I don't have to pay inheritance tax on the property becuase it falls below the £325K threshold, however do I have to pay stamp duty on the property when I buy out my brother's share? As I legally own 50% of the property - if I do have to pay stamp duty will it be on the total value of the property (£295K) or just my brother's share (£147,500K)?

booksurr

the beneficiary of an inheritance is exempt from SDLT on the share that they inherit

if a beneficiary subsequently sells their share to anyone else (including another beneficiary) then the normal rules of SDLT will apply, ie the tax will be charged on the total consideration paid (the money changing hands). So you will have to pay SDLT on 147,500 if that is the actual amount you pay your brother.

because you already own 50% of the property and are purchasing another share in it, you are exempt from the higher rate SDLT, so you will pay at the normal rate, 2% on the amount over 125k, ie you will pay £450 in SDLT

basic rules and calculator link
https://www.gov.uk/stamp-duty-land-tax/overview
https://www.gov.uk/stamp-duty-land-tax/residential-property-rates

higher rate exemption: para 3.12
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/570876/SDLT_Higher_rates_for_additional_properties.pdf

G_M

TimmyLee73 wrote: »

....

The house is worth £295K. I don't have to pay inheritance tax on the property becuase it falls below the £325K threshold, ....?

just to be clear:

1) you do not pay Inheritance Tax, the Estate does

2) IHT is not levied on the property but on the total Estate, so if your mother had savings, investments, a yacht, silver cutlery etc that raised the value of the Estate to the allowance (£325K), then IHT is due. (subject to possible spouse's allowance too).

Has Probateb een granted?

TimmyLee73

booksurr wrote: »

the beneficiary of an inheritance is exempt from SDLT on the share that they inherit

if a beneficiary subsequently sells their share to anyone else (including another beneficiary) then the normal rules of SDLT will apply, ie the tax will be charged on the total consideration paid (the money changing hands). So you will have to pay SDLT on 147,500 if that is the actual amount you pay your brother.

because you already own 50% of the property and are purchasing another share in it, you are exempt from the higher rate SDLT, so you will pay at the normal rate, 2% on the amount over 125k, ie you will pay £450 in SDLT

Thanks for the great response. To avoid paying SDLT altogether, it is possible that I could agree with my brother for him to sell me his 50% at £125K (0% SDLT) and pay him the remaining £22,500 as a cash lump sum?

Pixie5740

TimmyLee73 wrote: »

Thanks for the great response. To avoid paying SDLT altogether, it is possible that I could agree with my brother for him to sell me his 50% at £125K (0% SDLT) and pay him the remaining £22,500 as a cash lump sum?

How is that any different to paying your brother £147,500?

booksurr

TimmyLee73 wrote: »

Thanks for the great response. To avoid paying SDLT altogether, it is possible that I could agree with my brother for him to sell me his 50% at £125K (0% SDLT) and pay him the remaining £22,500 as a cash lump sum?

LOL, nice idea - you are of course entirely free to attempt tax fraud anyway you see fit....

all changes in ownership are reported by the Land Registry to HMRC and they match up the amount paid to the tax declared, particularly where the amount is declared at or close to the "magic" 125k tax free threshold and that does not tally with the expected value of the property as declared for probate purposes.... HMRC may be slow with its admin, but they ain't totally stupid.

The rule is that where payments are made in instalments they are "linked transactions" so the total paid is what counts, not any one individual instalment. So unless you and your brother intend to be considerably more "inventive" than your idea above about how you pay him £22,500 on a property valued at 295k, no you cannot evade the SDLT

https://www.gov.uk/guidance/sdlt-linked-purchases-or-transfers

if your mother's estate had £147,500 of other assets (cash in the bank? shares held?) you and your brother could arrange a variation to the will so that you inherit the whole house and your brother takes £147,500 worth of other assets instead? That way no SDLT would be due as you'd get the house under inheritance exemption. Clearly if your mother's estate does not run to such size you are stuffed, as your brother is entitled to his share so you'll have to pay the SDLT yourself

AnotherJoe

Pixie5740 wrote: »

How is that any different to paying your brother £147,500?

One is fraud, the other isn't ?