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Where Taxpayers and Advisers Meet

SDLT & CGT on Transfer of Home to Spouse (Before Divorce/Separation)

MarkC1234
Posts: 3
Joined: Fri Mar 03, 2017 8:40 am

SDLT & CGT on Transfer of Home to Spouse (Before Divorce/Separation)

Postby MarkC1234 » Thu Jul 23, 2020 10:50 am

Hope someone can offer a little help on this preliminary thought.....

Married couple, home worth circa £300k, outstanding mortgage £75k. (both in joint names)

In order that one partner can look to purchase a separate home, I'm looking at option of this:

Whilst still married, transfer ownership of home to 100% partner A, joint mortgage would also transfer to partner A name only.

From what I understand, there is no CGT liability whilst a couple are married on transferring assets.

I also understand that wirth regards to SDLT, providing half the outstanding mortgage comes to less than £125,000 (residential property), no tax will be payable.

1) Is this correct? So no CGT or SDLT liability on this movement?

2) Does that then allow Partner B to go ahead and buy a home without SDLT being incurred? (Or does it still fall within the 2nd home category as long as you remain married?)

3) Or does Partner B have to pay the 2nd home SDLT levy, an apply to have it refunded if the divorce is then pursued and finalised within 3 years of the purchase of new home?

In a nutshell, I'm looking at how quickly the current home can be transferred into a sole name, allowing the 2nd person to gain a sole mortgage and buy a new property. (remaining as joint names on a mortgage will no doubt make it very difficult to borrow to buy a home) Without having to pay SDLT or CGT on the movememnt of the family home.

It's likely that the separation may go down the route of 2 years separated in order to then file for divorce. If we had to wait 2 years before moving the family home ownership and mortgage, I cant think of any way the other partner can buy a house & will result in 2 years of forced rental home.

Thanks

AGoodman
Posts: 1057
Joined: Fri May 16, 2014 3:47 pm

Re: SDLT & CGT on Transfer of Home to Spouse (Before Divorce/Separation)

Postby AGoodman » Fri Jul 24, 2020 11:41 am

1. Correct. There may still be SDLT filing obligations (i'm not sure)
2. No - it doesn't work if they are living together at the time of the purchase. Property ownership is imputed to a spouse for the 2nd home test
3. I don't think there is any route to a refund on these grounds - only if you sell the first home within the 3 years

The SDLT imputation only applies if the couple are living together at the time of the purchase (FA 2003 Sch 4ZA para 9) so that would be a route out if the buyer moves out shortly (or longer) before. CGT on the original property may not be an issue if it is transferred to the spouse within 9 months of moving out as your client would benefit from 100% PPR.

MarkC1234
Posts: 3
Joined: Fri Mar 03, 2017 8:40 am

Re: SDLT & CGT on Transfer of Home to Spouse (Before Divorce/Separation)

Postby MarkC1234 » Fri Jul 24, 2020 11:54 am

Thanks for your reply AG, appreciated.

Can I just clarify my understanding on this point of SDLT for the partner leaving the marital home.....

The SDLT imputation only applies if the couple are living together at the time of the purchase (FA 2003 Sch 4ZA para 9) so that would be a route out if the buyer moves out shortly (or longer) before. CGT on the original property may not be an issue if it is transferred to the spouse within 9 months of moving out as your client would benefit from 100% PPR.

So if the marital home was transferred to Spouse A, whilst they were living together, then say Spouse B moves out after this event........... Spouse B then purchases a home & no SDLT is payable on the new home. (provided they have moved out before the purchase?)

This seems an easy loophole if no other consideration is taken into account? (Couple are still married, just physically separated by not living together? So many married couples could do this?)

I would have thought SDLT payable if couple remain legally married? (hence my orginal impression that additional SDLT would be payable by Spouse B on purchasing their home, but then option to refund if/when the divorce was finalised?

Sorry if I'm missing something here, would like to get it straight in my head.

Thanks for any assistance

AGoodman
Posts: 1057
Joined: Fri May 16, 2014 3:47 pm

Re: SDLT & CGT on Transfer of Home to Spouse (Before Divorce/Separation)

Postby AGoodman » Thu Jul 30, 2020 9:29 am

There's a bit more to it than that:

AGoodman
Posts: 1057
Joined: Fri May 16, 2014 3:47 pm

Re: SDLT & CGT on Transfer of Home to Spouse (Before Divorce/Separation)

Postby AGoodman » Thu Jul 30, 2020 9:30 am

1011 Individuals who are married to, or are civil partners of, each other are treated for the purposes of the Income Tax Acts as living together unless—

(a) they are separated under an order of a court of competent jurisdiction,

(b) they are separated by deed of separation, or

(c) they are in fact separated in circumstances in which the separation is likely to be permanent.

maths
Posts: 7904
Joined: Wed Aug 06, 2008 3:25 pm

Re: SDLT & CGT on Transfer of Home to Spouse (Before Divorce/Separation)

Postby maths » Sun Aug 02, 2020 4:26 pm

Transfer from B to A of B's 50% interest not a higher rate charge for SDLT. Assume occurs when married and living together.

B purchases alone a new property within 3 years. Assuming A and B not living together at this point then A is ignored in ascertaining whether B's purchase a higher rate transaction.
Although B owns only one property and purchases within 3 years it. would seem para 3(6)(ba) Sch 4ZA is breached (ie immediately after the transfer from B to A, A possessed an interest in the property so transferred). In which case B's purchase is a higher rate transaction as it does not constitute a replacement of an only/main residence.

SDLT Geek
Posts: 199
Joined: Sun Apr 30, 2017 5:45 pm

Re: SDLT & CGT on Transfer of Home to Spouse (Before Divorce/Separation)

Postby SDLT Geek » Sun Aug 02, 2020 9:22 pm

Maths points to a problem for B with the replacement exception. So it seems Condition D for the surcharge to apply (the conditions are set out in FA03/Sch4ZA / para 3) is met.

But it seems Condition C is not met for B as B at the time of the purchase has no other property interests. On this basis the 3% surcharge should not apply to a purchase by B alone.

maths
Posts: 7904
Joined: Wed Aug 06, 2008 3:25 pm

Re: SDLT & CGT on Transfer of Home to Spouse (Before Divorce/Separation)

Postby maths » Sun Aug 02, 2020 9:59 pm

Completely agree with SDLTGEEK.

Obviously I appear to have missed the wood for the trees.


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