Property developers may be able to benefit from a valuable Stamp Duty Land Tax (SDLT) relief when purchasing residential property from the estate of a deceased person. In some cases, this can reduce SDLT to nil, but the rules are strict and closely monitored by HMRC.
When Does the Relief Apply?
The relief is available where the buyer is an incorporated property trader, the property is purchased from the personal representatives of a deceased estate, and the deceased occupied the property as their main residence within two years before death. If these conditions are met, the purchase may qualify for full SDLT relief. Incorporated property traders includes companies and LLPs so ordinary partnerships and sole traders are excluded. We would also recommend only established traders seek the relief to ensure there is no issue proving they are ‘in the business of buying and selling property’.
Key restriction: Refurbishment Limits
A key ongoing condition is the restriction on refurbishment expenditure. Developers must ensure that qualifying refurbishment costs do not exceed the permitted amount, being £10,000 or 5% of the purchase price (whichever is higher), subject to an overall cap of £20,000.
Only value-enhancing works are included when assessing this limit. Essential safety or compliance works are generally excluded. If the threshold is exceeded at any point during the monitoring period, the relief is withdrawn in full.
Time Period
The refurbishment restriction applies for the first two years following completion. During this period, HMRC may review expenditure and any breach of the conditions will result in full clawback of the relief. After the two-year period has expired, the restriction falls away.
Occupation and Letting Restrictions
The property must not be let under a tenancy, occupied under a licence, or used or lived in by anyone, including connected parties such as directors or employees. Even informal or rent-free occupation can breach the conditions and lead to withdrawal of the relief.
Size Restrictions
The property, including garden and grounds, cannot exceed 0.5 of a hectare or a size that larger than is ‘necessary for the reasonable enjoyment of the dwelling’ which is admitted vague. However, if the property is too large, it may still be possible to claim a partial relief, i.e. on the smaller part.
What Can Developers Actually Do with the Property?
In practice, the relief is best suited to a light-touch, vacant strategy. Developers will typically take possession of the property, insure it, and keep it secure and unoccupied. Limited refurbishment within the permitted cap may be carried out before the property is sold or otherwise disposed of.
The relief is not suitable for buy-to-let investments, occupation, or significant redevelopment projects.
Summary
SDLT relief on estate purchases can eliminate tax entirely, but it is a targeted relief to assist the sale of probate properties, rather than a general development tool. The key risk area is refurbishment expenditure, which must remain within strict limits during the two-year monitoring period.
For more information, please contact me or any member of Dawson Hart’s commercial property team for a free initial consultation today on 01825 762281.