Category: Simple Probate

How can a developer buy a residential property SDLT free? Probate Relief

Stamp Duty (SDLT) can be expensive, normally a developer would have have to pay the extra 3% SDLT.

Acquisition by property trader from personal representatives

Finance Act 2003 (legislation.gov.uk)

3 (1) Where a dwelling is acquired by a property trader from the personal representatives
of a deceased individual, the acquisition is exempt from charge if the following
conditions are met.
(2) The conditions are—
(a) that the acquisition is made in the course of a business that consists of
or includes acquiring dwellings from personal representatives of deceased
individuals,
(b) that the deceased individual occupied the dwelling as his only or main
residence at some time in the period of two years ending with the date of
his death,
(c) that the property trader does not intend—
(i) to spend more than the permitted amount on refurbishment of the
dwelling, or
(ii) to grant a lease or licence of the dwelling, or
(iii) to permit any of its principals or employees (or any person connected
with any of its principals or employees) to occupy the dwelling, and
(d) that the area of land acquired does not exceed the permitted area

Meaning of “property trader”
8 (1) A “property trader” means—
(a) a company,
(b) a limited liability partnership, or
(c) a partnership whose members are all either companies or limited liability
partnerships

Meaning of “refurbishment” and “the permitted amount”
9 (1) “Refurbishment”of a dwelling means the carrying out of works that enhance or are
intended to enhance the value of the dwelling, but does not include—
(a) cleaning the dwelling, or
(b) works required solely for the purpose of ensuring that the dwelling meets
minimum safety standards.
(2) The “permitted amount”, in relation to the refurbishment of a dwelling, is—
(a) 10,000, or
(b) 5% of the consideration for the acquisition of the dwelling,
whichever is the greater, but subject to a maximum of £20,000.

This is also covered in SDLTM21040 – Stamp Duty Land Tax Manual – HMRC internal manual – GOV.UK (www.gov.uk)

This could be could be useful in the following circumstances

Property Flipping

Property Flipping is done when you buy a property do a small amount of work to it and then sell it for a profit.

Using this SDLT relief could significantly increase your profit.

Buy Refurbish Refinance Rent (BRRR)

This relief can only be used by a trading company, residential letting doesn’t count as trading. However, you could have a group of companies, one is a development company and one a residential investment company.

The development company buys the Probate Property and gets the relief.

Once its been refurbished the development company could sell the property or transfer it to the investment company.

Groups benefit from Group SDLT relief. Do you pay SDLT on Properties Transfers within a Group? – Steve J Bicknell Tel 01202 025252

steve@bicknells.net

How to reduce IHT with a Deed of Variation?

Predicting the value of your Estate isn’t easy, not least because you don’t when you will die.

After someone dies it is possible for the beneficiaries to change the Will using a Deed of Variation, there are free examples on the internet for example Deed of Variation UK Template – Make Your Free Deed of Variation (rocketlawyer.com)

Note that Beneficiaries under 18 can’t enter into Deeds of Variation.

HMRC also provide a Checklist IOV2 Instrument of Variation checklist (publishing.service.gov.uk)

You can’t re-write a Will but a Deed of Variation will change the content of it and the Inheritance Tax (IHT) payable.

For example by making a donation to charity.

Where a gift is made to a Charity its taken off the value of the estate and as such will reduce IHT, it could even reduce the rate of IHT on the whole estate currently by 4% (40% to 36%), click here for HMRC reduced rate calculator.

In summary, your donation will either:

  • be taken off the value of your estate before Inheritance Tax is calculated
  • reduce your Inheritance Tax rate, if 10% or more of your estate is left to charity

You can donate:

  • a fixed amount
  • an item
  • what’s left after other gifts have been given out

The Deed of Variation can be prepared before or after the Grant of Probate but generally in must be made within 2 years of the date of death.

FA 2010 definition of charity

Under Sch 6 Para 1 FA 2010 a charity is a body of persons or trust that:

  • is established for ‘charitable purposes’ only
  • meets the jurisdiction condition (i.e. is subject to the jurisdiction of a relevant UK court or the courts of a relevant territory)
  • meets the registration condition (i.e. has complied with any requirement under the applicable law to be registered), and
  • meets the management condition (i.e. the managers are fit and proper persons).

This definition of charity allows charities of relevant territories to qualify as charities for the purposes of UK legislation (provided the conditions above are met). Relevant territories are those in EU Member States, Iceland and Norway

Other reasons why you might need a Deed of Variation

  1. Equalising distributions between the Beneficiaries
  2. Including beneficiaries such as a grandchild born after the Will was created
  3. Including someone who the Rules of Intestacy do not apply to, such as a partner or step-child
  4. Resolving uncertainty in the Will

steve@simple-probate.co.uk