Liability for Stamp Duty Land Tax (SDLT) and Capital Gains Tax (CGT) on additional properties
Although there is currently a 0% rate for SDLT until 30th June 2021 (the ‘stamp duty holiday’) this only applies to your main home and does not apply to additional properties.
Additional Properties Surcharge
Any additional property purchased while you still own your matrimonial home will incur the addition property surcharge at the time of purchase.
The surcharge was introduced in 2016 and was designed to deter people from buying and hoarding additional properties which may otherwise be purchased by first time buyers.
Effect during divorce proceedings
If you wish to move out of the former matrimonial home, or have moved out, and wish to purchase another property while you still own or part own your main home, then this purchase would incur an additional property surcharge of 3% (4% in Wales and Scotland) on top of the current applicable rate of SDLT (Land Transaction Tax in Wales).
You would likely also create a Capital Gains Tax (CGT) liability upon this additional property, by holding more than one property without a financial order in place, which would be due if it was ever sold.
The current rates of SDLT (applicable until 30th June 2021) and the effect of the surcharge are shown below:
| Purchase Price | Rate | With additional property surcharge |
|---|---|---|
| Up to £500,000 | 0% | 3% |
| Over £500,000 to £925,000 | 5% | 8% |
| Over £925,000 to £1.5 million | 10% | 13% |
| Over £1.5 million | 12% | 15% |
When the surcharge applies
The surcharge applies if you buy a property and still own another property worth £40,000 or more.
This includes your former matrimonial home, even if you intend the new property to be your main home while your spouse remains at the matrimonial home.
Non-UK residents will also pay an additional 2% surcharge on top of the above surcharge and the normal SDLT rates from 1st April 2021.
Exceptions
If you buy a property to replace a main home then you do not have to pay the surcharge, but only if you sell the previous property before completing the purchase of the new property.
If you are forced to pay the surcharge and subsequently sell your previous property within 3 years, then you can apply for a refund of the surcharge.
Financial order
Impact upon the surcharge
Having a financial order in full and final settlement ancillary to your divorce allows, especially in the case of an order delaying the sale of your former matrimonial home, you to purchase a further property without having to pay the additional property surcharge.
Without an order in place, you will be liable for the surcharge upon any additional property you purchase.
An order can also make it easier for you to obtain a mortgage as it will deal with your liability for the mortgage repayments upon the former matrimonial home
When to purchase
The sealed order needs to be formally in place before you complete the purchase of the 2nd property in order to avoid paying the additional property surcharge.
If you purchase the property after you separate or even during the divorce proceedings, but before you have an order in place settling your matrimonial finances, then the surcharge will still be payable and you will likely create a CGT liability.
Capital Gains Tax (CGT)
A financial order provides full CGT relief at both the time of transfer (when the order is made) of the former matrimonial home and also at the time the property is eventually sold, should the order include a delayed sale. Allowing you to purchase a new home without the risk of a CGT liability.
Contact us, we are here to help
We’re here to help, so please pick up the phone or drop us an email and one of our dedicated team will help with your enquiry.