Probate Relief — Stamp Duty Land Tax (SDLT) Exemption

Exemption from Stamp Duty Land Tax is available if a property owned by a deceased estate (i.e. a ‘probate property’) is purchased by a property trader company from the personal representative(s) of the deceased. This exemption is known as Probate Relief. A property trader must be a limited company, an LLP, or a partnership whose members are all companies or LLPs, and it must be engaged in the business of buying and selling properties.

For Probate Relief to be available, certain conditions must be met:

The acquisition must be made in the course of business, i.e., property trading, and not merely for investment purposes.
The deceased must have occupied the property as their main residence within two years before their death.
The property trader must not intend to spend more than the permitted amount on refurbishment, grant a lease or license on the property, or allow any of its principals or employees to occupy the property. The permitted amount is the lower of £10,000 or 5% of the purchase price, up to a maximum of £20,000.
The land acquired must not exceed the permitted area, which is defined as 0.5 hectares or less.

If all these conditions are met the property trader will be eligible for a maximum of up to 100% SDLT relief.

Permitted Area

If the first two conditions are met but the property area exceeds the permitted size, partial relief may be available. In such cases, the amount paid for the acquisition becomes the chargeable consideration. The chargeable consideration is the difference between the market value (MV) of the permitted area and the MV of the total area.

Permitted Amount

The maximum amount that can be spent on refurbishment is the lower of £10,000 or 5% of the purchase price, up to a limit of £20,000. This can pose a challenge for property traders, who typically carry out extensive work to make the property as attractive as possible for potential buyers.

It’s important to note that the permitted amount specifically applies to the development of the property and not for bringing up to modern standards. For example, if the property has been occupied for several decades, it may not meet current electrical or plumbing safety requirements. In such cases the cost of bringing the property up to modern standards is not included in the permitted amount.

Costs such as rewiring, fixing trip hazards, or removing dangerous trees are considered part of meeting safety requirements. Therefore it is essential for developers to precisely document their spending to ensure that they do not exceed the permitted amount.

Withdrawal of Relief

SDLT relief may be withdrawn by HMRC if any of the following occurs:

The property trader spends more than the permitted amount.
The property trader grants a lease or license of the dwelling.
The property trader permits any of its principals or employees to occupy the property.

Example

Steve is the personal representative of his deceased uncle, who lived in the property as his only residence for many years before passing away. Steve intends to sell his uncle’s estate, which measures 0.4 hectares and is valued at £350,000. A property trader, Bill Traders Ltd, is interested in purchasing the property. Bill Traders Ltd plan to refurbish the property and spend approximately £16,000 on the renovation.

Without relief Bill Traders Ltd would need to pay £15,500 in SDLT based on the following calculation:

Price Band	Rate	SDLT Due
Up to £250,000	3%	£7,500
£250,000–£925,000	8%	£8,000
Total SDLT Due		£15,500

However since Bill Traders Ltd is buying the property from Steve who is the personal representative of the deceased, and the property area is within permitted limits and no more than the permitted amount is spent on refurbishment, SDLT probate relief will be available. Bill Traders Ltd will save £15,500 in SDLT.