There is often an exemption available from Stamp Duty Land Tax (SDLT) where property is transferred between spouses or civil partners in connection with a divorce or separation.
On the face of it, this can seem relatively straightforward.
However, in practice, it’s an area where a surprising amount of uncertainty arises, particularly around what needs to be in place for the exemption to actually apply.
We've recently had a few conversations where one party is transferring equity in a former matrimonial home as part of a separation, but there is uncertainty around whether the documentation and timing are sufficient to support the relief.
The reality is that separation is rarely a single, clearly defined event. There is no fixed order in which things must happen. Instead, each case tends to involve its own sequence of decisions – agreeing to separate, working out how assets will be divided, one party moving out, transferring equity in the former home, and in some cases one or both parties purchasing new properties.
Where there is a court order that has been approved and the transfer takes place in accordance with that order, the position is generally clear – the exemption will usually apply.
However, many couples do not wait for a formal court order before beginning to live separately or reorganising their finances. And this is where the position becomes more nuanced.
The legislation does allow the exemption to apply where the transfer is made in accordance with an “agreement” between the parties.
But what actually counts as an “agreement”?
So, what does the legislation actually say?
The legislation allows SDLT relief where a transfer between spouses or civil partners happens either:
under a court order linked to divorce or separation, or
under an agreement made in connection with, or in anticipation of, the separation
HMRC guidance reflects the same general principle – focusing on whether the transfer is clearly connected to the breakdown of the relationship.
So, whilst the exemption itself is relatively broad, we’re back to the practical question of what is sufficient to amount to an “agreement” where there is no court order yet in place.
What happens when there is no court order? (A grey area)
In the absence of a court order, the legislation refers to an agreement made in connection with the separation.
This is where situations can vary quite a bit in practice.
At one end of the spectrum are informal discussions between parties about how assets might be divided. These conversations are extremely common during separation, particularly in the early stages, but on their own they would not generally be enough to evidence an “agreement” for SDLT purposes.
The reason for this is fairly practical – there is usually no clear record of what was finally agreed, when it was agreed, or whether it was ever formally concluded in a way that can be evidenced if reviewed later.
Because of that, purely verbal understandings or informal discussions tend to fall short of what would normally be expected to support the exemption.
The grey area really begins once discussions move into something more formalised and clearly documented.
Written arrangements and documentation
Where there is something in writing, this can help provide clarity, but there is still a distinction between informal correspondence and a more formalised agreement between the parties.
What tends to carry more weight is where there is a document that:
has been agreed, signed and witnessed by both parties, and
clearly sets out or references the separation arrangements in relation to the property transfer
This is because it helps demonstrate both that an agreement has been reached, and that it is clearly connected to the breakdown of the relationship.
By contrast, informal emails or partial written exchanges may support the background context, but they do not always clearly evidence a concluded agreement on their own.
What about when a consent order is being used?
In many cases, couples will ultimately formalise their arrangements through a consent order as part of the divorce process.
Even where a court order has not yet been approved, a signed consent order can often provide strong evidence of the agreed position, particularly where it clearly forms part of the wider separation arrangements and sets out how assets are intended to be dealt with.
It helps demonstrate that there is a structured and settled agreement in connection with the divorce process, even if court approval is still pending.
As always though, the overall position will depend on the full facts and timing in each case.
Final thoughts
In practice, the key distinction is often between:
transfers made under an approved court order, where the position is generally more straightforward, and
situations where there is no court order yet, and the question becomes whether there is a sufficiently clear and formal agreement in connection with the separation
Informal or verbal arrangements alone would not usually be enough to support that position, which is why the documentation becomes so important in these cases.
Every situation will turn on its own facts, and the evidence in place at the time of transfer is often critical.
If there is any uncertainty, it is usually worth taking professional advice so the SDLT position can be considered properly in light of the specific arrangements and documentation available. Contact us above today.
Is SDLT payable when transferring property during a divorce?
SDLT is not always payable when property is transferred between spouses or civil partners as part of a divorce or separation. An exemption may apply where the transfer is made under a relevant court order or under an agreement connected with the breakdown of the marriage or civil partnership.
However, the exemption is not automatic in every situation. The timing, documentation and parties involved all need to be reviewed carefully.
What is the SDLT exemption on divorce?
The SDLT exemption can apply to certain property transfers between spouses or civil partners when the transfer is connected with the ending of the relationship.
This may include transfers made under a court order, a separation order, judicial separation, or an agreement made in connection with, or in anticipation of, the divorce or separation.
Do you need a court order to avoid SDLT on divorce?
A court order is often the clearest way to support the SDLT exemption, but it is not always the only route.
The rules may also allow relief where there is an agreement between the parties connected with the separation or divorce. The practical issue is whether that agreement is clear, formal and well evidenced enough to support the SDLT position if questioned later.
Is SDLT payable when transferring property during a divorce?
Strong evidence will usually include a formal written agreement, court order, approved consent order, or signed documentation showing that the property transfer forms part of the separation arrangements.
Informal messages, verbal discussions or vague correspondence may not be enough on their own. The evidence should show what was agreed, when it was agreed, and how the transfer relates to the breakdown of the relationship.
Does a verbal agreement count for SDLT relief on divorce?
A verbal agreement is unlikely to provide strong evidence for SDLT relief.
The issue is not simply whether the parties understood what was happening. The issue is whether there is a clear record that an agreement existed and that the transfer was made in connection with the separation or divorce. Without written evidence, the position becomes much harder to support.
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