SDLT on divorce and recovery

When an individual buys an interest in a residential property in the UK, and at the completion of that transaction he owns more than one residential property, he must pay the SDLT supplement of 3% on all the applicable rates. The combined rates are known as the higher rates of SDLT.

Those higher rates of SDLT apply even where one of the properties is located outside of the UK. However, the SDLT supplement can be reclaimed where the purchaser is replacing his main home, and the original home is sold within three years of buying the new home.

On divorce the former home may be occupied by one spouse and the children of the marriage for some years after the divorce, but the property remains held in the names of both former spouses. Where the departing spouse buys another home, he or she must pay the higher rates of SDLT, but can’t reclaim the 3% supplement once the three year transition period has passed.

Schedule 11 of Finance Bill 2017-2018 (which will become FA 2018) provides relief from the higher rates of SDLT where the former home is held under a property adjustment order made as part of a divorce, and the former spouse has acquired an interest in a new home which comprises at least 25% of the ownership.

There is generally no SDLT charge where a property is disposed of as part of the divorce settlement to the former spouse. However, where properties are exchanged between partners who are not divorcing the higher rates of SDLT can apply. Schedule 11 provides relief from the higher rates on such exchanges of interest while the individuals are married and living together.

Schedule 11 also introduces relief from the higher rates of SDLT where a property is purchased on behalf of a child whose affairs are subject to the Court of Protection.

First-time buyers who have already paid SDLT on the purchase of their home under a deal completed on or after 22 November 2017, may have paid the SDLT without accounting for the exemption introduced on Budget day. In those cases the additional SDLT can be reclaimed from HMRC if a request is made in writing to: Stamp Duty Land Tax, HM Revenue & Customs BX9 1HD.

Written by the Tax Advice Network