“There are only two certainties in life, death and taxes” . This phrase has taken on a new meaning since new stamp duty rules were introduced in April 2016. There was little press about it, mainly because the government issued the guidelines so late. It soon became clear that few understood the far-reaching implications of the changes. A year on and lawyers are still gasping with each new transaction.
Since April 2016, a significant number of property buyers had to pay a stamp duty surcharge of 3%. Put simply, if you own one property when buying another, you could find yourself paying an extra 3% stamp duty. The main exemption to this is if you are selling your main home and replacing it with another home simultaneously.
As lawyers, we have to assume the stamp duty surcharge is payable on every transaction we deal with unless we are satisfied that it is not!
These new rules have a significant impact on people who are getting divorced or have separated.
Let’s assume that two people are getting divorced. They currently own the family home jointly whilst divorce proceedings are being dealt with. In the meantime, they can’t live together so one of them moves out and buys another property. He decides to buy a property for himself. As he partly owns the main residence he will pay an extra 3% stamp duty on his purchase . The stamp duty can be refunded on application once the family home has been sold, provided it is sold within 3 years of the purchase. The onus is on the buyer to reclaim the extra stamp duty from HMRC – good luck with that!
Let’s assume another scenario. Two people are married and living together. However, the family home is in one person’s name only because she bought it before they were married. He works away from home a lot and wants to buy another property near his work. Because he is married he will be charged the extra 3% stamp duty on his purchase. He is linked to a property owner by association of marriage, even though he owns no property in his name.
Beware! Typically, on divorce, the family home is sold and both spouses buy their own properties on the sale of the family home. Let’s assume on the day the sale is then delayed by a day for some reason. The purchases of the two new properties complete on the designated date for completion. At the end of the day of completion, the parties technically own two properties each. They are both liable for the extra 3% stamp duty on both purchases! This can then be reclaimed from HMRC once the sale goes through the following day. However, the extra 3% has to be paid first and then reclaimed. This could mean £10,000s. The lesson – do not proceed with your purchase before your property has been sold!
If your child, who is under 18, has inherited a property interest, you hold that share on trust until your child turns 18. While you are trustee, if you buy a property in your name, you are deemed to have another property interest as a trustee and will be liable to pay the extra 3% stamp duty.
There is a sense that the changes in stamp duty have had an unintended impact on large sections of society. It’s main purpose was to stop people buying multiple investment properties but the real effect have been far reaching. So many people have been caught in the middle. The rules and regulations have probably not been drafted well and ordinary people are paying the price.
If you need more advice about stamp duty on divorce or separation, and how it can affect you, please contact me, Venisha Shah, on 020 3150 2525.