What is additional stamp duty?
Additional stamp duty is usually payable where a person becomes the registered owner of a property whilst they are still registered as owner of another.
There are exceptions, but generally speaking this rule will mean that most people buying a second home will pay an extra 3% stamp duty on completion.
This can make life difficult for divorcing couples.
Why? Because very often one of them will remain in the family home with the children.
If the departing spouse/civil partner remains on the title deeds to the family home he/she will pay additional stamp duty on any new purchase.
What is a property adjustment order and how can it affect stamp duty on divorce?
In the 2017 budget, the chancellor announced changes to the stamp duty rules to help couples going through divorce or judicial separation or civil partnership dissolution.
Under the amended rules, a new home bought by the departing spouse will not necessarily be treated as a second home provided that there is a property adjustment order on the first property.
A property adjustment order is an order made on divorce, judicial separation or civil partnership dissolution, in connection with property.
Essentially there are two main types of property adjustment order:
- an order to transfer ownership or the benefit of property; and
- an order to “settle” the property by creating a trust over it or to adjust an existing settlement or trust.
How to use a property adjustment order to save additional stamp duty.
If you have agreed with your partner or spouse that:
- one of you will remain living in the family home after the divorce; and
- it will remain in joint names;
you need to apply for a property adjustment order “by consent”. This order will include a declaration of trust over the family home.
Even with an agreement, it will take around 3-6 months for the court to deal with your application from the date you apply, so you need to factor that into your planning for a new purchase.
You will also need to be divorced to at least decree nisi stage before the court can make this order. So plan well ahead. As far as I am aware there seems to be no option to claim a refund of stamp duty if you purchase first and then obtain a property adjustment order later.
Once the property adjustment order has been made, the spouse who is not living in the family home any longer will not need to pay additional stamp duty on purchasing his/her new main residence. This is in spite of the fact that for a period of time, he/she will be registered as owner of more than one property.
Note that if the spouse already owns other property as well as the family home, this exemption may not apply. You should always take separate accountancy advice before entering into any purchase in any event.
Property adjustment order by consent (consent order)
If you need a property adjustment order you can apply for one “by consent” (known as a consent order).
It is absolutely essential to take professional legal and accountancy advice before purchasing a new home to make sure that you understand the options open to you and the tax implications of each.
Property adjustment orders that include a declaration of trust are not easy to draft. Make sure you use a reputable legal firm with solicitors professional indemnity insurance. This is special insurance that only covers solicitors.
People may set up in business that call themselves law firms but unless they are solicitors they cannot have this type of professional insurance. It is always worth asking them to confirm in writing who their insurance is with and exactly what it covers if something goes wrong.
The court charges a fee to approve your application and make the property adjustment order.
The current consent order fee is £50 (correct as at 6 April 2019).
If you need help preparing the paperwork the cost for this varies enormously and you will need to shop around to find the right service for you at a price you can afford. Always use a solicitor rather than an unregulated online business.
My fees for preparation of a property adjustment order where the property will remain in joint names, start at £270 for a straightforward agreement. For more information on consent orders you can start here with my consent order factsheet.
What about separation without divorce?
Unfortunately, the amended additional stamp duty rules only apply if you apply for a divorce or to dissolve your civil partnership.
You will need a decree nisi or a conditional order before you can apply for a property adjustment order.
Unless you qualify for partial or total exemption from paying court fees, the court costs associated with an amicable divorce/dissolution of civil partnership are:
Petition issue fee: £550 (correct as at 11 January 2018)
You can apply online here
Once you have a divorce underway, you need to prepare the paperwork for your consent order.
Contact me using the enquiry form below and I will get back to you as soon as possible.