Planning to separate? If you're a homeowner, be aware of the tax implications when dividing your assets
PUBLISHED: 11:59 05 September 2016 | UPDATED: 14:50 06 September 2016
The new Stamp Duty Land Tax has been well documented since its introduction in April 2016, but Claire Filer from B P Collins focuses on how these new rules and Capital Gains Tax could impact on couples who are splitting up, where one partner wants to buy a second home to live in, whilst retaining a share in the family home.
After a divorce or dissolution of a civil partnership, where one party retains an interest in the family home (or indeed another property such as a buy-to-let or second home) they could be liable for thousands of pounds in extra tax when they buy their own home.
Anyone who buys an additional residential property is caught by the “higher rates for additional property” rules and will be required to pay HMRC an additional 3% on top of the normal rates of SDLT.
Claire Filer, senior associate in the family practice explains:
“This is particularly important for divorcing couples to consider, because in some instances an agreement might involve one of them retaining an interest in the family home to be realised later (for example when the children reach 18) and also going on to acquire their own property. Advice should therefore be sought about possible alternatives such as having a charge over the former family home instead of retaining an interest.
“This could also affect individuals who are financially able to acquire a second property prior to reaching an agreement with their spouse and have not yet divested themselves of their interest in the family home. However, there is some protection for people in this situation as it is possible to claim a refund on the extra tax if their interest in the family home is realised within 3 years of the acquisition of the new property.”
Claire highlights that it is also important to consider the impact of SDLT on unmarried couples – a sector that has risen by nearly 30% over the past decade – who wish to separate:
“Whereas couples who are divorcing or dissolving a civil partnership transfer ownership of a property as part of an agreement or court order, are not subject to SDLT, this is not the case for unmarried couples or those not in a civil partnership.
“In this case SDLT will be payable if you transfer ownership of an interest in property to your partner and receive cash or other consideration in exchange.
“HMRC effectively regards the transfer of ownership of a property between an unmarried couple as a normal residential property transaction and require the payment of SDLT.”
Capital Gains Tax
Couples who are splitting up also need to be aware of Capital Gains Tax. If the family home is sold or transferred after the tax year of separation, the normal rule – where transfers between spouses are made on a no gain / no loss basis (and therefore not chargeable for Capital Gains Tax) - will no longer apply.
In this instance, people should be particularly aware of the rules about principle private residence relief, which is not always available if you have been separated more than 18 months before you dispose of your interest in the family home.
“B P Collins’ family practice works very closely with its property lawyers in order to provide the most comprehensive advice to its clients on what financial hurdles could lie ahead for couples that choose to separate.