Navigating Stamp Duty Land Tax (SDLT) Implications in Divorce

If a court order mandates the sale of the matrimonial home, SDLT reliefs may be available depending on the circumstances. In general, property transfers between spouses or civil partners as part of a divorce settlement are exempt from SDLT, provided they occur under a court order or formal agreement relating to the dissolution of the marriage or civil partnership. 

 

In addition to this general exemption, replacing a main residence after divorce has significant implications for SDLT liability. Normally, an individual purchasing an additional residential property would be subject to a 5% surcharge. However, when the new property replaces a main residence that has been sold or transferred as part of a divorce, the surcharge does not apply. For this exemption to be valid, the new home must be acquired within three years of selling or transferring the former main residence. 

 

Timing plays a crucial role in determining SDLT liability. If the matrimonial home is sold before either spouse purchases a new property, both individuals may be eligible for the main residence replacement exemption, meaning they will not incur the 5% surcharge when acquiring their next home. However, if one spouse purchases a new property before the sale of the matrimonial home, they may not qualify for this exemption, as they are not technically replacing a main residence at that time which can lead to unexpected SDLT liabilities. 

 

For individuals who have permanently separated, even in the absence of a formal court order, SDLT treatment changes. HMRC treats permanently separated couples as unmarried for tax purposes, meaning each individual’s property ownership is assessed independently. In cases where a property adjustment order is issued, the spouse who relinquishes their share of the home under the order will not be treated as a property owner for SDLT surcharge purposes when they purchase a new residence. However, the spouse who retains the property under the order remains the legal owner and may be liable for the 5% surcharge if they later buy another home without selling their retained property. 

 

The importance of getting the timing right cannot be overstated. A misstep in the order of transactions could mean unnecessary SDLT costs, potentially amounting to thousands of pounds. It is essential for divorcing individuals to carefully plan the sale of their matrimonial home and subsequent purchases to ensure they maximise any available SDLT reliefs. 

 

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