Separating Couples at Risk of Higher Rate Stamp Duty Penalty


  • New 3% surcharge on second homes could hit separating couples despite exemption
  • Proof of legal separation a must before completing purchase says solicitor

  • Divorcing and separating couples have been warned not to jump the gun on house buying, or they could get slammed with a new 3% surcharge.

    Separating Couples at Risk of Higher Rate Stamp Duty Penalty

    From 1 April, people buying a second home or a buy-to-let property will have to pay 3% above the standard rate of stamp duty. Couples who are re-mortgaging in order to buy an individual home for one party because they are separating should be legally exempt. But a race to buy and a lack of awareness of the new rules has prompted warnings against couples buying hastily before ending their marriages.

    John Pratley, family law solicitor at Simpson Millar, says confusion over how long couples must live apart before being entitled to divorce, coupled with a fast-moving housing market means the new rules will prove costly.

    “This is all about getting the order of things right but couples who are faced with a fast-moving housing market and a desire to split in a hurry will end up paying a hefty price if they get it wrong,” says John.

    He adds: “Many people still wrongly believe that they must have lived apart for two years before they can request a divorce. They go ahead and re-mortgage the matrimonial home, transfer the ownership into one person’s name and use the money raised to buy the other person a home of their own. But if the date of purchase is even a single day before they are legally separated, the new property will now be considered a second home and, therefore, subject to a higher rate of stamp duty. The cost of this misunderstanding will be thousands of pounds. It’s simple; don’t complete the purchase of a new property before having signed a legal separation agreement.”

    According to Mark Underhill, National Operational Account Manager at the Simpson Millar Conveyancing Department, a heated property market is driving house buyers to act faster than ever.

    Mark says: “We’re seeing buyers in the midst of divorces desperate to move quickly, as they see prices rising and the properties they want to buy flying off the market so fast. The Government has confirmed that married couples and those in civil partnerships who can evidence a formal court order or deed of separation will NOT be treated as one unit for the purposes of the 3% surcharges. In these market conditions, it is essential that separating couples get swift legal advice to formalise their separation before they rush into buying or they could end up paying stamp duty that need not apply to them.”

    Simpson Millar recently carried out a review of 200 ongoing divorce cases and found that, in as many as 40% of cases, only one party was represented by a lawyer.

    John Pratley says it is a trend wich could exacerbate this particular issue: “We’ve seen a marked increase in the number of people who chose to represent themselves during divorce proceedings. The consequence is that, sometimes, issues which could prove costly are not raised in time. In this case, the price is 3% extra on a house purchase. With average purchase prices of £191,000 in January 2016*, this means almost £6,000 in unnecesary tax could be charged. Couples who are in this situation need to explain the background of the transaction to their conveyancing lawyer to make sure they, in turn, can advise accordingly regarding the ideal timings and potential charges.”

    Under the new rules which take effect on 1 April 2016, couples who are either divorced, legally separated or actually separated in circumstances which they intend to be permanent will be exempt from having to pay the new higher rate stamp duty.

    * Source: Land Registry House Price Index

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