Married couples buying property together are being hit with unexpected tax bills under the Government’s new stamp duty rules.
Stamp duty traps are harder to avoid for married couples, who are counted as one unit under the law – to the extent that some people may feel sufficient incentive to divorce.
Last year the Treasury was accused of introducing a “tax on marriage” after it emerged that unlike cohabitees, married couples would be unable to put a home in each of their names to escape the duty.
But the full impact on married couples is only now becoming clear.
The extra 3pc duty surcharge applies to anyone buying property in addition to their main residence – a buy-to-let, a second home or a holiday home.
A purchase is exempt if the buyer is replacing their main residence, and they can get a refund if there is an overlap, as long as the original property is sold within three years.
In theory, married couples are treated as one individual. In other words, the Government says that if either one of them would be subject to the higher rates on a transaction, then anything the other does will also fall within the higher duty net.
However, a couple can also only have one “main home” between them. If one spouse sells a “main home”, owned only in his or her name, the other spouse can claim that disposal as if it were their own main residence – despite having no stake in the property themselves.
When these two rules contradict each other, a couple can end up caught in a catch-22 – with their solicitors and accountants often in a similar state of confusion.
‘The madness of this new tax means we could save £20,000 by getting divorced’
One Telegraph Money reader is caught in a Kafkaesque paradox. She has been told that she and her husband have to pay an extra £20,000 duty – which could be avoidable if they were not married, or if they got divorced.
Claire Glen, 33, who works in healthcare, lived in London until 2008, when she moved to Manchester to live with her husband. She let her London flat out.
Now the pair is selling the property they live in, which he owns solely, and moving in together to a property they plan to own jointly.
The rules state that any property owned by either half of the couple should be treated as being owned by them jointly.
This would mean they both still own her old home, making them liable for the tax. The extra bill might force them to pull out of the transaction.
Even if her husband bought the new property in his sole name the surcharge would be due – because they are married.
“This isn’t the intention of the law at all,” Ms Glen said. “The rules are confusing and contradictory. It’s been incredibly frustrating and stressful.”
Other advisers have pointed to different parts of the rulebook suggesting the surcharge would not apply.
‘We didn’t actually have to pay – but our solicitor said we did’
Mark and Nikki Rogers, from Worcester, have had a similar experience.
The couple are moving house. The problem is that their house is in Mrs Rogers’ sole name, and Mr Rogers sold his main home in 2008.
Both own buy-to-let properties. Their solicitor told them – incorrectly – that since Mr Rogers sold his main home more than three years ago, the couple would have to pay the extra tax on their new home.
Because of this the couple decided, based on this incorrect advice, that their new home would have to be solely in Mrs Rogers’ name.
“This is going to be a home for both of us, but now I can’t actually own it. This law has made it much more difficult,” Mr Rogers said.
Mr Rogers is actually exempt under a little-known clause which allows anyone who sold their main home before November 2015 to buy a new one before November 2018 without paying the surcharge.
The Rogers’ solicitor based her judgement on guidance from HMRC which had been wrongly interpreted.
‘I gave my wife half of one of our properties – and she had to pay extra stamp duty’
Sajj Ahmed, 45, gave his wife Fauzia half of one of their two buy-to-let properties in Birmingham. This is common among buy-to-let landlords ahead of the changes to mortgage interest relief being phased in next year.
Because the house had a mortgage on it, the transfer was subject to stamp duty, even though it was a gift within marriage.
Before the transfer Mrs Ahmed didn’t own any property herself – but in a quirk of the law, she had to pay the 3pc surcharge on the transfer because her husband does.
Mr Ahmed said: “We were due to complete on a Thursday, and then on Wednesday the solicitor said we needed to pay the tax. I didn’t understand it.”
Paul Emery of PricewaterhouseCoopers, the accountancy firm, said it was normal for stamp duty to be charged on a transfer of equity which involves a mortgage but that before the new surcharge, Mr and Mrs Ahmed would have been exempt.
The debt transferred was around £80,000, lower than the old stamp duty threshold of £125,000. But for those subject to the surcharge, the threshold is £40,000 – so the Ahmeds had to pay £2,400.
Got a stamp duty conundrum? Get in touch: olivia.rudgard@telegraph.co.uk