SDLT and Divorce: Property Transfer and the 3% Surcharge

By Kate | June 12, 2023

Are you transferring property through a divorce or separation? Dealing with Stamp Duty Land Tax (SDLT) can be complex, and it’s crucial to understand how to minimise costs. Transfers between two former partners may qualify for stamp duty relief and exceptions from the 3% additional rates, especially when timing the purchase of a replacement home. To maximise savings, it’s important to consult a tax professional early in the process – contact us today for further advice, or carry on reading to find out more.

Please also see here the change in rules for Capital Gains Tax (CGT) for divorcing couples, effective from 6^th April 2023.

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Stamp Duty on Property Transfer after Divorce

A property transfer (which can be one property, or more), between a couple during a divorce, annulment, judicial separation, or separation order will be SDLT-exempt. This applies when the transfer involves only the couple and falls under either:

A court order, or
An agreement made by the couple before or after an order of the court provided it’s related to or in contemplation of the order. The agreement should be a formal written document signed by both parties.

Buying Out a Partner, or Gifting Your Share

If you’re buying your ex-spouse or civil partner out of the main home, and it’s in line with the above terms, there is also no stamp duty payable. The same applies when gifting your share in the main home.

Selling the Property

When selling the marital property to a third-party purchaser after the divorce, the usual stamp duty rates will apply. If the property was your main residence, you may qualify for the main residence replacement exemption by purchasing a replacement property within three years, as long as your ex-spouse has not already claimed the exemption.

Marriage vs Separation: The 3% SDLT Surcharge

If a married couple living together each intends to buy a house (not the shared matrimonial home), the 3% SDLT surcharge must be paid on at least one of the purchases. Each spouse is considered to own any dwellings owned by the other spouse for SDLT purposes.

Separation Agreements

However, if a couple agrees to separate permanently (even if without 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.

Property Adjustment Orders

Let’s take a case where one spouse (Anne) owns a dwelling or a share of a dwelling, and the court makes a property adjustment order in favour of the other spouse (John). Anne’s ownership of the dwelling is disregarded for the 3% surcharge purposes if she purchases another (only if John’s only or main residence is the dwelling, but Anne’s is not).

SDLT Planning for Divorce: The Timings

Timing plays a vital role in the stamp duty rules for divorce and separation. Let’s consider another couple’s example – Ben and Denice – who got divorced in July 2021. The court order required Ben, who didn’t own any other residential property, to transfer his share of the matrimonial home to Denice in August 2021. Fortunately, this transfer was exempt from stamp duty on divorce. Since Ben no longer had ownership of a dwelling, he could purchase another property without paying the 3% additional stamp duty rates.

What if Ben Had Owned Residential Property?

If Ben had also owned additional residential property at the time, such as a buy-to-let flat, he could have avoided the 3% surcharge by qualifying for the exemption regarding the replacement of his only or main residence. To qualify, Ben would need to purchase his new main residence within three years, from the earlier of the date he transferred his share to Denice in August 2021, and the date he physically moved out of their matrimonial home.

The timing is key – if Ben had moved out in November 2017, he would no longer be eligible for the main residence replacement exemption and would be required to pay the surcharge on his new residence.

What if Ben Had Retained His Share?

In a scenario where Ben retained his share of the matrimonial home but moved out, with Denice continuing to live there to raise their children, purchasing a replacement main residence would incur the 3% additional rates.

However, if the couple obtained a property adjustment order favouring Denice, Ben’s share in the matrimonial home would be disregarded for the purpose of the surcharge, provided he didn’t own any other residential property. It’s crucial for the couple to obtain the order before Ben purchases his replacement home; otherwise, he would have to pay the 3% surcharge, and no refund would be possible once the order is issued.

Need Help with Stamp Duty Land Tax?

If you’re going through divorce or separation, we can help you fully understand and utilise the available stamp duty exemptions, while also helping you claim any applicable relief. We can also provide valuable guidance on the Capital Gains Tax implications – just message us through our online form, call 01743 562430, or email hello@mercianaccountants.co.uk.