SDLT on Divorce and Separation

Do I pay stamp duty to transfer my property on a divorce or separation?

The transfer of a house or flat between husband and wife or civil partners is exempt from SDLT on 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 separation order.

Stamp duty on transfers between 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. For more information on stamp duty implications of transferring property during divorce, click here.

Separation agreements

If a couple agrees 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.

Court orders on divorce or separation

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.

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.

Who should pay capital gains on divorce settlements?

If you are married or in a civil partnership, you can transfer assets from one to another without any CGT until you separate and after that event, the transfer between one spouse and the other is only free from CGT for transfers that occur on or before the earlier of (1) their divorce order or judicial separation and (2) the last day of the third tax year after the tax year in which they ceased to live together, i.e., before the 6 April in the third year from the year ending 5 April in which they separated.. 

However, once the assets are the subject of a formal separation agreement or divorce order you have an unlimited time in which to make a no gain/no loss transfer to your former partner. 

If the capital gains tax exemption for married couples is no longer available, transfers between the couple may be deemed to take place at market value, which may give rise to a liability to capital gains tax on the spouse disposing of the property or a share in it (subject to any available exemptions such as main residence relief).

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 additional 3% rate 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 qualified 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 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 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.

Last Updated: 24 July 2023 to include the changes in section 41 Finance (No 2) Act 2023 to sections 58 and 225B, and insertion of section 225BA into, TCGA 1992.

Frequently Asked Questions