SDLT and Divorce: Transferring Property and the 3% Surcharge

Stamp duty on a divorce or separation can be complicated and it is very important to take advantage of the exemptions from stamp duty available for transfers between separating and divorcing couples and also the exceptions from the 3% additional rates when one spouse is buying another home where the timing of the purchase of a replacement home can be vital in order to take advantage of any relief from stamp duty.

The earlier on in the process that you consult a tax and stamp duty divorce expert such as Patrick Cannon the more likely you are to save.

Is stamp duty payable on the transfer of our home after our divorce?

A transfer of property between a couple on a divorce, annulment, judicial separation or a separation order will be exempt from SDLT as long as they are the only parties to the transfer or transfers and the transfers are made under:

• An order of the court or
• An agreement between the couple before or after the court order, but in contemplation of or in connection with it. The agreement should be a formal written agreement signed by both of them.

What if we own two properties?

The transfer of a house or flat between husband and wife or civil partners is exempt from stamp duty (SDLT) on a divorce or separation if the transfer is made under a court order or under an agreement between the couple in connection with the dissolution of their marriage or a separation order. Therefore, the shares in one or both properties can be transferred to the other without having to pay stamp duty.

Will I have to pay SDLT if I buy my ex-partner out of our main home?

If you were married to each other or in a civil partnership and the purchase is made under a separation agreement or court order then no stamp duty will arise.

What if I gift my share of our main home to my partner?

If you were married to each other or in a civil partnership and the gift is made under a separation agreement or court order then no stamp duty will arise.

What are the SDLT considerations if we sell the property after our divorce?

On a sale of your marital property to your spouse, the stamp duty exemption will apply as long as the transfer of the property is made under the court order granting the divorce. On a sale of your property to a third party purchaser after your divorce, they will pay stamp duty in the usual way. If the property was your only or main residence then you can qualify for the main residence replacement exemption if you buy a replacement within three years and your spouse has not already claimed the main residence replacement exemption.

The 3% surcharge and married couples

There is no general exemption from SDLT for married couples who transfer property to each other while they are living together. However, the SDLT on the transfer will be charged at the normal residential rates and the 3% surcharge for additional dwellings will not apply.

However, a married couple who are living together cannot each buy a house without paying the 3% surcharge on at least one of them because each spouse is treated for SDLT purposes as owning any dwellings owned by the other spouse.

Separation agreements

If a couple agree to separate permanently but without getting a court order they will be treated for SDLT purposes as an unmarried couple. This means that for the purposes of the 3% surcharge each spouse can buy a house without being treated as owning any property the other spouse owns. This also means that transfers of property between them will be exempt from stamp duty.

Property adjustment orders

Where one spouse (“A”) owns a dwelling or a share of a dwelling and in connection with matrimonial proceedings a property adjustment order has been made by the court in favour of the other spouse (“B”) and the dwelling is B’s only or main residence but not A’s only or main residence, then A’s ownership of that dwelling is ignored for the purposes of the 3% surcharge if A buys another dwelling.

SDLT planning on a divorce or separation

It is very important to study the stamp duty rules for divorce and separation carefully and get the timing right. For example, Bob and Diane got divorced in September 2020 and Bob (who did not own any other residential property) was required by the court order to transfer his share of the matrimonial home to Diane. Bob made the transfer of his share to Diane in October 2020 and the transfer was exempt from stamp duty on divorce. As Bob no longer owned a dwelling, he could then purchase another dwelling without having to pay the 3% additional rates of stamp duty.

If Bob had also owned other residential property at the time that he was keeping such as a buy to let flat, then he could also avoid the 3% surcharge if he qualifies for the exemption for replacing his only or main residence. In order to qualify for the main residence replacement exception from the 3% additional rates, he needs to buy his new main residence no more than 3 years after the earlier of the date of his transfer to Diane in October 2020 and the date he actually moved out of their family home. If Bob moved out of the matrimonial home in December 2016, then he is too late to qualify for the main residence replacement exemption and will have to pay the 3% surcharge on his new residence.

If Bob had retained his share of the matrimonial home when he moved out and Diane continued to live there to raise their children, then when Bob bought a replacement main residence, he would have to pay the 3% additional rates. However, if the couple gets a property adjustment order in favour of Diane then for stamp duty purposes, Bob’s share in the matrimonial home will be ignored for the purpose of the 3% additional rates and he will not have to pay the 3% surcharge on his later purchase if he does not own any other residential property. The couple must get the property adjustment order before Bob buys his replacement home, otherwise, he will have to pay the 3% additional rates and cannot get a refund when the order is made.

If you or your clients are facing a divorce or separation contact Patrick Cannon to ensure that the stamp duty exemptions on divorce, separation or dissolution of a civil partnership are fully taken into account and any relief is claimed. Patrick can also advise on the Capital Gains Tax consequences at the same time.