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Separation for Unmarried Couples - A Hidden Sting in the Tail

on Wednesday, 18 May 2022.

When unmarried couples own a property together and experience a relationship breakdown, one of the main things they will need to consider is what to do with the property they live in.

They may decide that one party will buy the other out or they may sell the property altogether. This situation is very common, however separating couples often do not consider the tax liabilities which may arise.

Stamp Duty Land Tax

Stamp Duty Land Tax ('SDLT') may apply where the property is going to be transferred from joint names to one party's sole name. In this situation, the person that is acquiring the share of the property may be liable to pay SDLT.

If property is transferred because of divorce, legal separation or the end of a civil partnership there is no SDLT payable. However if the joint owners are unmarried and not in a civil partnership when they transfer the property from joint names then they may have to pay SDLT. This tax often catches unmarried co-owners by surprise.

It is important to work out this cost early and factor it into consideration when reaching an agreement.

Unmarried couples may agree that just one of them will take over ownership of a property they bought together, including any outstanding mortgage. The person taking ownership will pay SDLT on the total 'chargeable consideration' if it exceeds the SDLT threshold.

The current SDLT threshold is £125,000. Chargeable consideration includes any cash payment that one makes to the other for their share and the proportion of any outstanding mortgage in relation to the share of the property being transferred.

The 3% surcharge applicable to the purchase of additional properties should not be in point even if more than one property is owned but care does need to be taken that exemption from the surcharge applies.

Capital Gains Tax

Capital Gains Tax ('CGT') can apply when a property is sold or transferred. The tax is charged on any gain that the property has realised - if it has risen in value since it was bought, CGT will apply.

CGT is not normally chargeable if the property is your main home as principal private residence relief will apply. However, it is chargeable if the property is your second home or if you have not been living there for more than nine months prior to the sale. If you are an unmarried couple and your relationship breaks down, this is worth consideration because if you move out and the property is sold more than nine months later, CGT will be chargeable on a proportion of the gain equal to the period where principal private residence relief cannot be claimed.  

It also applies where an unmarried couple own two or more properties, ie one being the main home and the other being a property which is rented out. In this scenario CGT would be payable on any gain made on the sale of the property which has been rented out.

You will pay CGT if your overall gains for the tax year are above the annual exempt amount. For 2021/22 the annual exempt amount it £12,300. Certain payments made to improve a property may be deductible to reduce any gain.

How Can We Help?

At VWV we adopt a joined up approach and can provide specialist advice to unmarried couples and also specialist advice with regard to tax implications upon separation.

If you have any questions on this complex area, please contact Emily Roskilly, who advises unmarried couples on relationship breakdowns, in VWV's Private Client team on 0117 314 5298.

Alternatively, if your query relates specifically to tax, please contact Emma Bradley in VWV's Tax team on 0117 314 5445.

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