Should you ditch your partner to avoid a hefty stamp duty bill?

In this article I explore what stamp duty is, who it applies to, why your relationship status matters, and what you can do about it.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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Stamp duty land tax – I’ll just refer to it as ‘stamp duty’ for now – is the tax that arises on purchases of UK property with a value above a certain threshold. The thresholds vary slightly depending on where in the UK the property is located, but in England and Northern Ireland the charge will apply to purchases of all residential property with a value of more than £125,000 (in Scotland the threshold is £145,000 and in Wales it’s £180,000).

Crucially, these thresholds are extended even further if you‘re a first-time buyer (known as ‘first time buyer’s relief’).

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For purchases with a value above the threshold, a relevant percentage is applied to determine the amount of tax due. The rate ranges from 2% to 12% of the purchase price, depending upon the total value of the property and where in the UK it is located.

In addition to this rate, a particularly nasty 3% surcharge is slapped on to the purchase price if you already own a property, and a further 2% surcharge applies if you’re a non-UK resident at the time of the purchase.

Although the amounts are all calculated and paid together, it can be easier to view these as three separate stamp duty charges.

How your relationship status can affect the amount of stamp duty you owe

If you’re a single, ready-to-mingle UK resident first-time buyer, then you’re best placed here. As are UK resident couples who don’t already own a home (or at least, they’re selling their old home and replacing it with a new one). In these instances, first time buyer’s relief is available, and no surcharges should apply.

Problems can arise when two or more people buy a property together and one party is a first-time buyer while the other is subject to a surcharge, either because they own another property or because they are non-UK resident, or both.

This can have negative consequences for two reasons: 1) first time buyer’s relief is now not available; and 2) surcharges are applied to the total value of the property, ignoring the actual ownership split. In short, both parties are penalised for buying the property together.

The rules are even harsher for married couples and civil partners because, for the purposes of stamp duty, they are treated as a single entity – if a surcharge applies to one of them, then it is applied to the value of the entire transaction.

Those going through a divorce should note that you will continue to be treated as a single entity until the date a ‘decree absolute’ is issued. An exception to this is where individuals are not living together, and it can be demonstrated that there is a ‘permanent desire to separate’.

What can be done?

For those who have already tied the knot, there is little that can be done to avoid the loss of first time buyer’s relief and any associated surcharges. However, if you’re engaged and in the process of buying a house, delaying the wedding until after completion could save you tens of thousands in stamp duty (a little extra to put towards that extravagant, Cinderella wedding you’ve always dreamed of).

For unmarried couples intending to buy together, there is potential for one partner to acquire the new property alone so that the purchase is not ‘tainted’ by the property belonging to the other.

‘Joint borrower sole proprietor’ (JBSP) mortgages have been touted as a popular means of achieving this. These products allow both partners to be named on the mortgage while only one of them owns equity in the property. Put another way, both would be responsible for paying the mortgage but only one of them would legally own the property. This arrangement certainly has its benefits but would be considered high risk to many – should the relationship breakdown, lenders could come after either one of them for full repayment of the loan in the event of a default, and this in turn could negatively impact both their credit scores.

Conclusion

As we have seen, your relationship status can be the difference between paying tens of thousands in stamp duty and not paying any at all.

As your relationship status can’t always be planned, steering clear of such traps can be tricky, but equipped with this knowledge it’s my hope that some of you can at least avoid the potential pitfalls. Whether that means it’s time to ditch your partner or not is up to you!

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