Married with 2 properties but separating. Future stamp duty?

ryngo

Hi folks,

Wife and I are going to separate. We have 2 properties. We currently live together in our PRR and also have a Rental. We are going to sell the PRR and go our separate ways buying new homes respectively.

My assumption is that until we divorced we would both then be liable for second home stamp duty on each of our new homes unless we sold both properties? Is this right? 

Any way around it? And who’s it best to get advice from about something like this?

Mark_d

Best consult a tax advisor.

If one of you moved into your second property, such that it would qualify as a primary residence before the divorce, would that work for you?  I think it might make sense in the short term, considering CGT.

p00hsticks

Mark_d said:

Best consult a tax advisor.

If one of you moved into your second property, such that it would qualify as a primary residence before the divorce, would that work for you?  I think it might make sense in the short term, considering CGT.

Moving in for a short time would almost certainly have little to no impact on the CGT - making it you PPR  doesn't wipe out the CGT liability for the time it was rented out.  

I don't know about the SDLT position.  

Bookworm105

If one of you moved into your second property, such that it would qualify as a primary residence before the divorce, would that work for you?  I think it might make sense in the short term, considering CGT.

there is lots of case law showing that exact scenario fails for CGT purposes as the move lacks "permanence or an expectation of permanence" - it was done as an attempt to avoid CGT so gets thrown out. 

as for SDLT there is a rule that were the separation is in circumstances likely to be permanent then SDLT additional rate will not apply even if the formal divorce or court order has not (yet) happened.
The fact the current PRR is being sold lends utter credence to that status in your respective cases 
SDLTM09820 - SDLT - higher rates for additional dwellings - individuals - purchasing without your spouse or civil partner - Para 9 and 9A Sch4ZA FA2003 - HMRC internal manual - GOV.UK (www.gov.uk)

SDLTM00550 - Scope: What is chargeable: Exempt transactions: On the ending of a marriage or civil partnership FA03/SCH3/PARA3 and FA03/SCH3/PARA3A - HMRC internal manual - GOV.UK (www.gov.uk)

The normal 3 year time limit on replacement of main home would however still apply to each of you to exempt you from additional rate.
SDLTM09800 - SDLT - higher rates for additional dwellings: Condition D - general - Para 3(6) Sch 4ZA FA2003 - HMRC internal manual - GOV.UK (www.gov.uk)

The BLT would be ignored in the circumstance of such separation, you will each pay normal rate SDLT on the basis of replacing main home within the time limit.

see example "Ben"
SDLT and Divorce: Property Transfer and the 3% Surcharge (mercianaccountants.co.uk)

see example "Gary"
SDLT Planning on Divorce | SDLT on Separation | SDLT Experts (propertytaxservices.co.uk)

AskAsk

yes, you would both have to pay extra stamp duty as you are considered to have another property already.  you can claim back the extra stamp duty if you divorce within 3 years of buying the new property but it isn't clear to me as to whether you both could do this or just one of you as an article i found from a tax lawyer seems to indicate that only one of you can claim the refund.

it is a shame that tax is not clear for divorce couples.  HMRC is really bad with their info on this.

https://vardags.com/law-guide/divorce-finance-process/stamp-duty-and-the-sale-of-the-marital-home#:~:text=To be exempt from stamp,this exemption does not apply.

SDLT_Geek

AskAsk said:

yes, you would both have to pay extra stamp duty as you are considered to have another property already.  you can claim back the extra stamp duty if you divorce within 3 years of buying the new property but it isn't clear to me as to whether you both could do this or just one of you as an article i found from a tax lawyer seems to indicate that only one of you can claim the refund.

it is a shame that tax is not clear for divorce couples.  HMRC is really bad with their info on this.

https://vardags.com/law-guide/divorce-finance-process/stamp-duty-and-the-sale-of-the-marital-home#:~:text=To be exempt from stamp,this exemption does not apply.

I disagree with the first two lines of the first paragraph (now in bold).

I agree heartily with the second paragraph.

SDLT_Geek

ryngo said:

Hi folks,

Wife and I are going to separate. We have 2 properties. We currently live together in our PRR and also have a Rental. We are going to sell the PRR and go our separate ways buying new homes respectively.

My assumption is that until we divorced we would both then be liable for second home stamp duty on each of our new homes unless we sold both properties? Is this right? 

Any way around it? And who’s it best to get advice from about something like this?

Would the properties you are buying be in England?  If so, the relevant stamp duty is stamp duty land tax.

What might work well for SDLT, even if you are keeping the rental, is this order of events:

1.  Sell the jointly owned PPR.
2.  On the same day, or afterwards, each individually complete a purchase of a new home to live in, at a time when it is clear that you are "separated in circumstances likely to be permanent".

My view of the way the "replacement" rules work, is that you can then both claim the benefit of the replacement rules to escape the 3% extra SDLT.  https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09800

What would work out badly for SDLT would be, when keeping the rental, to do things in this order:

1.  For one of you to first buy a new home.
2.  Then you sell your jointly owned PPR.
3.  Then (or on the same day as the sale of the PPR) the other of you buy a new home.

I can explain why this works out badly if you like, but it is relatively complicated and this would be an unusual scenario.

ryngo

Thanks for all the replies.

The rental property is in England, and it wouldn't be easy for one of us to move into it.
It was our home for a few years, then we became accidental landlords. 
We moved to N.Ireland where our PRR is now. 

If we sell the rental I'm aware we will need to pay CGT minus our time living there. 

Fundamentally we want to separate and live apart ideally buying our own properties in N. Ireland. 
I'm open minded to the best approach but we would need to sell either of the two properties to fund replacement homes. We are not in a rush, and waiting a year before doing anything helps us with mortgages and ERCs. If we have to move to rentals it wouldn't be ideal but possible or one person buys one rents. 

SDLT_Geek makes sense to me but it's how we prove we are "separated in circumstances likely to be permanent" before we are actually divorced. 

Beginning to realise this is a bit of a minefield.

Bookworm105

ryngo said:

but it's how we prove we are "separated in circumstances likely to be permanent" before we are actually divorced. 

Beginning to realise this is a bit of a minefield.

that would be subject to the "main purpose" aka "matter of fact" test
there are many places in tax law where individual conditions are not specified, but where the underlying intention of the actions taken support a reasonable conclusion as to what was actually happening.
- you don't live together
- your finances are separate 
- you don't share social life together
- you kids (if applic) are well aware their parents are not together and schooling arrangements etc reflect that 
- you are openly "heading towards" formal divorce

CH21620 - Information & Inspection Powers: Conditions and safeguards: What we can require or inspect: Reasonably required - HMRC internal manual - GOV.UK (www.gov.uk)

although it relates to the issue of deciding which is the main home, the Frost v Feltham legal case sets out principles to be used when looking at the facts of someone's living arrangements:
 SDLTM09812 - SDLT - higher rates for additional dwellings: Meaning of 'main residence' - HMRC internal manual - GOV.UK (www.gov.uk)

that said, it is a lot clearer if you take the first step and get a legal separation agreement drawn up 
Get a legal separation - GOV.UK (www.gov.uk)

propertyrental

Would (either of you) you be buying in N Ireland or England?

ryngo

Buying in NI.