Property price valuations are a major consideration in any divorce or cohabitee financial settlement. So, how will the Chancellor’s announcement of a reduced rate in stamp duty until March 2021 affect those looking to divorce or separating from a partner in 2020?
In most cases, needs is the main priority. Meeting the children’s and both parties’ needs with one pot of money is the ultimate objective of any financial settlement. When you divorce, the income and assets that supported one single household will now have to support two separate ones. So, if there is any additional money available, then that is to the benefit of both parties!
What’s more, the reduction in stamp duty should make your former matrimonial home or jointly owned property much more sellable. It will also help when repurchasing another home too.
What is Stamp Duty?
Stamp Duty Land Tax (SDLT) is paid when you buy your main residence and any other residential properties, including second homes.
Thanks to the Chancellor’s announcement, there is no Stamp Duty due on your primary residence if it is sold for up to £500,000. You only have to pay Stamp Duty on the portion of the price paid above £500,000. As The Guardian points out:
“The saving could allow people to move more quickly than planned – instead of needing the money for tax they can now channel it towards their deposit.”
This is good news for anyone buying their first home or looking for a new family home after divorce, as it makes it cheaper to do so.
Your family home and divorce: four main options
When you divorce, you have four main options concerning the family home:
- Both of you move out, you sell the home, and find new homes each
- One of you can buy the other out
- You postpone the sale of your family home
- Arrange a charge back, where the legal ownership of your home changes but the person has a charge registered against the property for an agreed percentage interest against net or gross value
Stamp Duty and the property market
The government clearly hopes this reduced rate will help stimulate the housing market. If you are considering selling your primary residence and splitting the proceeds as part of your divorce financial settlement, the reduced rate should mean you have more potential buyers for your property.
Jamie Ward, head of stamp taxes at PwC, sees several more benefits:
“Buyers not paying a percentage of the property’s value to the government as stamp duty may have larger deposits and a better chance of securing a mortgage. Buyers may perceive they’re getting a better deal even if paying the same total amount. Also, the seller potentially benefits from receiving a higher amount from the buyer, and this may encourage more sellers to the market.”
Stamp Duty and two houses
There is a sting in the tail for anyone selling their former main residence, who then buys a new home before their old one is sold. If you are in a position where you own two properties at once, you will have to pay the higher rate of Stamp Duty on your new purchase, as it is in effect a ‘second home’.
If you sell your previous main residence within 3 years, you can claim a refund of the higher rate element of your Stamp Duty bill. However, as Stamp Duty must be paid within 14 days of purchasing your new main residence, this could leave you out of pocket for a while.
Stamp Duty: sell now or wait?
The change in Stamp Duty rate and the 31st March 2021 deadline should not be a reason in itself to rush to sell your family home. If your divorce settlement can’t be agreed on and it goes to court, the courts will always prioritise the needs of the children involved. This includes a requirement for somewhere suitable for the children to live with (ideally) each parent.
Talk to us early on
The decision to divorce is never easy, and once you do decide, there are so many factors that need to be considered. So the best advice we can give for those looking for divorce is, seek professional legal advice right at the start.
At LGFL, we offer a 1-hour initial online consultation with 30 minutes free included. An hour spent talking through your situation to a family lawyer such as ourselves can save you so much time, expense and stress as you’ll understand your options better and make more informed choices moving forward.
And, of course, the earlier you talk to us, the more likely it is that you can take advantage of the reduced rate of Stamp Duty if required, before it expires on 31 March 2021.