Property adjustment order | stamp duty on divorce | what is it and how do I get one?

additional stamp duty when you separate
Property adjustment order and stamp duty

How are property adjustment orders and stamp duty linked on divorce/dissolution?

In this article I am going to talk about property adjustment orders and stamp duty. I will refer to spouses generally, but the rules apply to civil partners as well. I will use the term divorce more often than dissolution of civil partnership but again the rules apply to both and indeed to judicial separation and nullity. Judicial separation is a formal court procedure that is similar to divorce. It is not simply to separate physically. 

Stamp duty is only payable over a certain value of property. Any references to stamp duty being payable assume that the value of the property being purchased is over this threshold and that all other relevant conditions apply. 

If you want to know more about your personal situation, please don’t rely solely on this or any other website article; take independent legal advice. 

Ordinary stamp duty and divorce, dissolution and judicial separation 

Divorcing and separating couples have generally been exempt from paying stamp duty on transfers of property between themselves, whilst they pay stamp duty on a new purchase like anyone else.

For example, if one spouse agrees to transfer their share in the family home to the other spouse on divorce, dissolution or judicial separation, no stamp duty is payable by the recipient spouse/civil partner. The transaction is usually exempt whether or not there is a property adjustment order.

The departing spouse does pay stamp duty on any new purchase however at the going rate.

This additional expense could be (and often is) seen as unfair, as it only applies to one party;  but it is possible to take it into account when agreeing a settlement and make an adjustment to the division of capital.

Additional stamp duty

In April 2016 the government introduced additional stamp duty.

Anyone buying a second property pays an additional 3% stamp duty on top of any other stamp duty that is due. 

Married couples are effectively treated as one unit for the purposes of this tax rule. They cannot buy one house each to avoid the additional stamp duty. They will be treated as each owning two homes whether or not they are on the title deeds for both.

The problem with additional stamp duty and divorce

First of all not all situations give rise to additional stamp duty on divorce, dissolution or judicial separation. 

If the family home is transferred into one spouse’s name, the other spouse can buy a second property to live in without paying additional stamp duty as long as the separation is intended to be permanent. 

There is no need for a property adjustment order and stamp duty will not be payable as long as you are not living together.

Living together is defined by HMRC here.

But what if the family home is not being transferred or sold?

Let’s assume the family home is owned in joint names. The couple separate and one spouse remains in the family home with the children.

As I’ve already explained, the departing spouse will pay stamp duty if he/she buys another property to live in.

The problem is that if he/she remains on the title to the family home as well, additional stamp duty becomes payable.

There is no automatic exemption as a result of divorce or separation if one spouse needs to buy a new home without selling the family home.

Why you may end up being on the title deeds to 2 homes

There are many situations where a separating or divorcing couple do not want to sell the original family home.

  • There may be children living there;
  • The departing spouse/civil partner may not want to add to the trauma or upheaval of the divorce by forcing the other to be uprooted;
  • There could be a large mortgage penalty to pay; or
  • The property may just be difficult to sell.

Whatever the reason, the couple are caught by the additional stamp duty tax rules, even after they divorce or separate.

Yet transferring the family home into one person’s sole name is not always an option. 

For example, if there is a mortgage on the property,  the lender may not agree.

This creates a problem even for people who may have given up all the equity in a property but are still on the title deeds themselves. 

They may want to do the right thing for a former spouse or their children, but also want to own their own place. And that is where property adjustment orders come in.

Divorcing couples can apply for a property adjustment orders and stamp duty relief becomes available.

Please note that this relief is not available for unmarried couples or separating couples who are not going through divorce, dissolution or judicial separation proceedings.

Property adjustment orders and stamp duty 

In November 2017 the Chancellor announced a new relief for stamp duty for divorcing couples, couples who are judicially separating or petitioning for nullity and couples dissolving their civil partnership. 

If you are petitioning for one of the above, you can apply for a property adjustment order and stamp duty will not be paid at the higher rate in some circumstances.

This relief does not apply to couples who are separating but not getting divorced etc because in order to apply to the court for a property adjustment order you need to apply for a divorce, nullity, judicial separation or dissolution of civil partnership first. 

What is a property adjustment order?

A property adjustment order is an order made on divorce, judicial separation, nullity or civil partnership dissolution in connection with property.

The order can be to transfer property from one party to the other or (more rarely) to the children.

Alternatively it can be an order to “settle” property or adjust an existing settlement.

What is settled property?

A settled property is now generally referred to as a property held on a trust of land.

This usually means that there is an agreement about the circumstances in which it can be sold, how any proceeds of a sale or equity will be distributed and who will live in the property and be responsible for any bills until the sale.

The court can make an order (by consent or not) setting out terms such as these. Often this may result in both spouses/civil partners remaining on the title deeds.

You may have read about these orders under the name Mesher order or Martin order. In both of those cases the sale of the property is postponed. In the case of a Mesher order the sale takes place after children have reached independence. A Martin order generally postpones the sale until the death or remarriage of the spouse in occupation.

This may also interest you

Consent Order Factsheet

Summary- property adjustment orders and stamp duty on divorce

The rules for higher and additional rates of stamp duty are complicated.

However, it all generally focuses on whether you are formally separated or getting divorced, judicially separated, a nullity or a dissolution of civil partnership; and, if you are, whether you will end up owning one house each or retain one in joint names and buy another for the departing spouse/civil partner to live in.

The chancellor made amendments to the rules in his November 2017 budget which makes life a little easier for those going through proceedings to end their marriage/civil partnership straightaway or judicially separate.

Under the new rules, if one half of a couple needs to buy a new property after divorce/dissolution of civil partnership/nullity or judicial separation, it will not necessarily be treated as a second home provided that there is a court order (a property adjustment order) to regulate the ownership of the jointly owned family home moving forwards. In other words, get a property adjustment order and stamp duty may not apply to you.

This may also interest you

Apply for a Consent Order

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