For a couple divorcing or separating, the last thing to cross their minds is taxes. However, considering taxes and their impact should never be underestimated. Not doing so may lead to a significant impact on your finances, exemptions, and liabilities.
A particular area that divorcing couples must be mindful of is SDLT (Stamp Duty Land Tax). SDLT comes into play when there is a transfer of property during the settlement process.
Do I Pay Stamp Duty To Transfer My Property On A Divorce Or Separation?
In the United Kingdom, the transfer of a house or flat between spouses or civil partners during a divorce or separation is exempt from stamp duty (SDLT) under certain circumstances.
This exemption applies only relief and when the transfer is conducted through a court order or an agreement made between the couple as part of their marriage dissolution or separation order.
This means that if a house or flat is being transferred between a husband and wife or civil partners in connection with their divorce or separation, they would not be required to pay the stamp duty tax.
This exemption aims to alleviate the financial burden on individuals going through a divorce or separation.
This blog shares everything that you need to know about SDLT on divorce and separation including when it is exempted and how you can apply for the exemption.
Continue reading to know more.
What is Stamp Duty Land Tax?
Stamp Duty Land Tax is a tax payable if you buy a piece of land or property over a certain price in England or Northern Ireland. This tax is paid when:
- A freehold property is bought.
- New or existing leasehold is bought.
- When you have purchased a property jointly through a shared ownership scheme.
- You have been transferred land or property in exchange for money.
There are certain thresholds for SDLT to apply. If the property costs less than the prices mentioned below, there is no stamp duty land tax to pay:
- £250,000 for residential properties
- £425,000 for first-time buyers. This is when the residential property is worth £625,000.
- £150,000 for non-residential land and properties.
Does Stamp Duty Land Tax Apply on Divorce Property Settlement?
When a couple is married, they don’t enjoy any general exemption from stamp duty land tax whenever there is a property transfer between them. SDLT, in this case, is charged at the normal residential rates. The 3 per cent surcharge for additional dwellings doesn’t apply in this situation.
Whenever a couple decides to divorce or separate, there is usually a division of resources, both money and physical assets, between the two parties.
This brings us to the question of the application of stamp duty land tax on such properties. There is an exemption available on stamp duty land tax in case there is a dissolution of marriage or if a couple decides to separate.
In simpler terms, if there is a situation of divorce, annulment, or judicial separation between a couple, and if either of the two parties decides to transfer property(s) to a former spouse or a partner, they don’t need to pay stamp duty.
This exemption is available only when the transfer of property is in accordance with a binding financial agreement (BFA) or a court order. Both these must be in accordance with the Family Law Act (1996).
If there has been a formal written agreement between the couple in connection with the court order, that also makes the former entitled to a stamp duty land tax exemption.
In conditions where a separating couple cannot draw up a binding financial agreement, they can approach the court for drawing up this order. In this situation also, when a court makes the transfer order of property, the property settlement will still be exempt from stamp duty.
How Can Divorced or Separated Couples Get an Exemption on Stamp Duty?
Now that you know how important stamp duty land tax is in the case of a divorce or separation, it is essential to know how you can apply for this exemption.
After all, given the taxation rates in the UK, people eligible for this exemption can save thousands of pounds.
That’s why, if you are in the midst of a divorce or separation and planning to transfer property to your erstwhile partner through a property settlement, it’s important to know the following points.
These points will point you towards the best way to get a stamp duty land tax exemption:
- If you are looking to get an exemption from stamp duty land tax, you need to get a copy of the binding financial agreement (BFA) or the court order. Whichever document you get, ensure that it clearly states that one party is transferring the property to the other party.
- Download the stamp duty land tax form here.
- You can also find more information on how to claim relief. According to this, you need to send an email explaining why you want to claim a relief. You should clearly mention the name of the relief to prevent processing delays. Make sure to include e-copies of all the relevant documents.
- If your forms get approved, you will get them back stamped and marked ‘exempt from stamp duty’.
Know This Also
Here are some more things that you need to know while filing for stamp duty land tax while filing for a divorce or separation:
The stamp duty land tax exemption is not applicable to couples who are not in a civil partnership or are unmarried.
You are advised to seek the service of a solicitor if you want sole ownership of your matrimonial home. To pay no stamp duty land tax, you will need to get a court order for divorce or separation or an agreement from your spouse citing the dissolution of the marriage or initiation of the separation.
Is stamp duty payable if I “buy out” my ex-partner?
Under the current Stamp Duty Land Tax (SDLT) regulations, if a transfer of property is executed as per a court order for divorce or separation, or as per an agreement between a couple in conjunction with the dissolution of their marriage or civil partnership, it will be exempt from SDLT.
However, it is important to note that this exemption is applicable solely to married couples or those in civil partnerships. Couples who are not married or not in a civil partnership do not qualify for this exemption. Therefore, they would be subject to SDLT on any property transfers made in such circumstances.
Do I need a solicitor to remove my ex from the property deeds?
If you are seeking sole ownership of the matrimonial or marital home from your partner, it is highly recommended to consult with a solicitor. They can provide valuable guidance and handle the legal aspects involved in transferring property over.
In order to avoid paying Stamp Duty Land Tax (SDLT), you will need a court order for divorce or separation, or an agreement with your spouse pertaining to the dissolution of the marriage or separation.
These legal documents are crucial in establishing your entitlement to sole ownership and minimizing financial and tax implications. A solicitor will ensure that the entire process is handled correctly and in compliance with the applicable laws and regulations.
Is the transfer of land taxable during a divorce?
In the context of divorce, annulment divorce separation agreements, judicial separation, or a separation order, the transfer of property between a couple can be exempt from Stamp Duty Land Tax (SDLT) under specific conditions.
This exemption applies when the unmarried couple themselves are the only parties involved in the transfer, and the transfers are carried out under either a court order or an agreement made by the couple before or after the court order, but in contemplation of or in connection with it.
It is important to note that the agreement should be a formal written agreement, signed by both individuals. This exemption helps facilitate property transfers in such circumstances without incurring additional SDLT costs.
Is there SDLT to be paid on a second home during separation?
When going through property adjustment after a divorce or separation, it is crucial to carefully study the stamp duty rules and ensure the timing of property transfers is done correctly. In the mentioned scenario, Gary and Laura separated in September 2020, and according to their separation agreement, Gary had to transfer his share of the mortgage debt the matrimonial home to Laura.
As Gary didn’t own any other residential property, this transfer in October 2020 was exempt from stamp duty on separation. Consequently, Gary, now without a dwelling, could purchase another property without having to pay the additional 3% stamp duty.
If Gary had owned other residential properties, like a buy-to-let flat, he could also avoid the 3% surcharge if he qualified for the exemption for replacing new residence as his only or main residence only.
Do I pay additional SDLT if my partner owns a property?
According to the Stamp Duty Land Tax (SDLT) regulations, a married couple residing together would be subject to the 3% surcharge if they both intend to purchase a house separately.
This is due to the fact that, for SDLT purposes, each of spouse owns or is considered to own any dwellings owned by the other spouse. Consequently, if either spouse already owns a property, the purchase of an additional property by the other spouse would incur the surcharge.
This regulation aims to prevent married couples from avoiding the surcharge by distributing their property ownership between them. It is essential for couples to consider this factor when planning to individually purchase properties.
Can SDLT be split between spouses?
Liability for Stamp Duty Land Tax (SDLT) on a joint purchase, including one made by a married couple, is deemed to be joint and several. This means that any purchaser involved can be held responsible for paying the entire amount of SDLT due.
While the parties involved can privately agree on who will bear the cost of SDLT and in what proportions, this agreement will not legally bind HMRC. The tax authority retains the authority to demand payment of SDLT from either third party purchaser, regardless of any previous arrangement made between the purchasers.
It is important to consider this when entering into joint property purchases to ensure all parties understand their potential obligation.
Who should pay capital gains on divorce settlements?
In the context of capital gains tax exemptions for married couples, the transfer of a property from one spouse to another is typically free of any tax consequences or implications, unless they are separated.
In cases where the spouses have separated, the capital gains tax exemption is only applicable until the end of the tax year in which the separation occurred. The separation can be established through a court order, a separation agreement, or in circumstances where the separation is likely to be permanent.
Once the exemption is no longer available, transfers between the couple may be considered as occurring at market value, potentially resulting in a capital gains tax liability for tax year of the spouse disposing of the property or a share in it, subject to any applicable exemptions such as main residence relief.
Need Help with SDLT?
Stamp duty land tax provisions can get tricky to understand. You need to know them right and get your timing right. Add to it the fact that there are multiple steps in claiming your SDLT exemption.
If you are going through the process of a divorce or separation, we can handhold you through this journey and provide valuable information on SDLT and help you claim relief on this tax.
Our legal team has expertise and experience and has helped hundreds of couples get this relief and save thousands of pounds in taxes. Make an appointment today to know more about tax advice and how we can help you.
FAQs – SDLT on Divorce and Separation
Do I have to pay Stamp Duty Land Tax (SDLT) when transferring a property as part of a divorce or separation?
Yes, in most cases, transferring property as part of a divorce or separation may be subject to Stamp Duty Land Tax (SDLT).
Are there any exemptions or reliefs available for SDLT in divorce or separation situations?
There are specific exemptions and reliefs available for SDLT in divorce or separation situations, such as the transfer of property between spouses or civil partners as part of a divorce or dissolution agreement.
How is the value of the property determined for SDLT purposes in divorce or separation cases?
The value of the property for SDLT purposes in divorce or separation cases is typically based on the market value of the property at the time of transfer.
What are the SDLT rates for transferring property in divorce or separation situations?
SDLT rates for transferring property in divorce or separation situations depend on the value of the property and the specific circumstances of the transfer. It is advisable to seek professional advice to determine the applicable rates.
Do I need to file a SDLT return when transferring property in a divorce or separation?
Yes, a SDLT return must be filed with HM Revenue & Customs when transferring property in a divorce or separation, even if no tax is due or if an exemption or relief applies.
Where can I find more information and guidance on SDLT in divorce or separation cases?
For more information and guidance on SDLT in divorce or separation cases, it is recommended to consult with a qualified tax advisor or legal professional, and to refer to the official guidance provided by HM Revenue & Customs.
