Stamp duty on divorce: buying out a husband’s share of the home

By Garry SteedmanPublished 28 October 20269 mins read11 sections

A wife wanted to keep the family home and buy out her husband’s half. Then someone told her she would owe stamp duty on his share and on the mortgage she was taking over. The stamp duty divorce question nearly made her give up the house. Our family law specialists advised her on how the settlement should be set up. This is an anonymised account.

Keeping the home, and a tax bill she had not planned for

The couple owned their home in England in joint names, with a mortgage. Their children were at a school close by. After the separation, both agreed she should stay there with the children.

The plan was simple. She would take a new mortgage in her sole name, pay her husband a lump sum for his equity, and release him from the old loan. Then a contact who had bought a house recently warned her about stamp duty. On a buyout, he said, she would pay tax on the lump sum and on his half of the debt.

The figure he guessed at would have used up most of her savings. She came to us worried that the deal she had agreed was out of reach.

How the stamp duty divorce exemption works

Stamp Duty Land Tax applies to property in England and Northern Ireland. Wales has its own Land Transaction Tax, and Scotland has a different tax again.

The key rule is paragraph 3 of Schedule 3 to the Finance Act 2003. It says a transaction between one spouse and the other is exempt from charge if it happens under a court order made on or after their divorce, annulment or judicial separation. It also covers a transfer made at any time under an agreement between them in connection with the divorce.

Because the transfer is exempt, the whole of it falls outside the tax. GOV.UK guidance confirms that you pay no stamp duty and file no return when you transfer property because of divorce. Section 77A of the same Act lists an acquisition exempt under Schedule 3 among the cases that need no return.

Her contact was not wholly wrong, though. Outside the exemption, paragraph 8 of Schedule 4 treats debt taken on by a buyer as part of the price. So if one owner takes over a joint mortgage, the law usually treats them as taking on the other owner’s share of that debt. A divorce buyout that falls within the exemption escapes that rule.

What our family law specialists advised

First, we advised her to put the terms she and her husband had reached into a proposed consent order, so the link between the transfer and the divorce was clear on paper. Under section 24(1)(a) of the Matrimonial Causes Act 1973, it would direct him to transfer his share of the home to her. Under section 33A, the court can approve agreed terms like these as a consent order.

Next, we talked her through timing. Section 24(3) says a property order made in divorce proceedings cannot take effect until the divorce order is made final. So we advised her to plan the transfer and the new mortgage for after that date, and to tell her lender early.

We also helped her set out the conditions in the order. These were the lump sum, the release from the old mortgage and a date for the transfer. With clear terms, her conveyancer could see exactly why the transfer was taking place and check the tax on that basis.

We advise on family law, not tax, so she checked the stamp duty exemption with her conveyancer, and the wider tax position with a tax adviser. Capital gains tax is a separate question, and our guide to capital gains tax on divorce explains how it works.

The outcome

She sent the signed consent order to the court with our guidance, and a judge approved it. Once the divorce was final, her conveyancer completed the transfer alongside her new mortgage. The conveyancer confirmed that the exemption applied, so she had no stamp duty to pay and no return to file.

Her husband received his lump sum, and the lender released him from the old loan. She and the children stayed in the home they knew.

Every case turns on its own facts, so this is not a promise about any other family.

What to check about stamp duty on divorce

The exemption depends on the transfer being made under a court order or agreement connected with the divorce.

The exemption only covers a transfer between the two spouses. If someone else joins the title or the mortgage, ask your conveyancer whether the rule still applies.

Check the tax with the right person. A conveyancer or tax adviser can confirm the position for your own property. Our guide to transfer of equity on divorce covers the mortgage side. You can also read how we prepare these success stories.

“Before you agree a buyout figure, ask a lender whether it will offer a mortgage in your sole name, since the whole plan rests on that answer. Then make sure the order says what happens if the money is not raised by a set date, such as a sale. Stamp Duty Land Tax does not apply to a transfer between spouses under a divorce court order or an agreement connected with the divorce, so show that link plainly.”

Garry Steedman, Family Law Consultant, Kabir Family Law

Talk it through with us

If a stamp duty divorce worry is holding up your plans for the home, talk to us before you sign anything. A free initial consultation is confidential and carries no obligation. Tell us what you have agreed so far, and our family law specialists will explain your options.