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My ex-husband and I divorced amicably in 2021. We both continue to live in the marital home which we have unofficially converted into two apartments.
It is worth around £600,000 and is in both their names.
We also own the two flats we each owned and lived in when we met in 2000. Each is worth around £300,000 and they are both in our joint names. My ex-husband’s flat has been rented since 2000 and mine since 2010.
We both retired early and are still a few years away from retirement age. Rental income is our only income and each of us has very little savings.
We agreed after our divorce to transfer ownership of the apartments back to the original owner, but we have not been able to resolve the necessary paperwork to do so.
How can we do this? Are there tax implications? And if so, would temporarily remarrying be a more cost-effective way to resolve this matter? is
Separation: Transferring jointly owned property back to its original owner after a divorce will involve costs, but could a temporary remarriage reduce them?
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This is Money’s Harvey Dorset responds: This is not a simple question. Whatever decision you make, there are likely to be costs involved.
Since you rely on rental properties as your primary source of income, it is worth sorting this out before you retire.
For some people, temporarily remarrying may seem like an extreme reaction. However, their reasoning is that they believe it could eliminate their capital gains tax (CGT) liability and also reduce other costs.
However, this would also put you in murky waters legally, as remarrying for the sole purpose of paying less tax is something that could be scrutinised by HMRC.
If you are considering remarriage as an option, then you should seek legal advice before doing so and carefully consider the above point.
This is Money spoke to two financial advisers to find out what you need to consider before making the transfer and whether remarriage is an option.
What taxes should I pay for transferring property?
Remarriage: Sarah Arora warns that marrying her ex-husband could affect other aspects of her life
Sarah Arora, Independent Financial Advisor at Flying Colours, answers: This question is more complex than it seems at first glance.
There are many factors to consider, so here is a breakdown of the steps you should take to minimize potential tax implications.
Capital gains tax
When you transfer ownership of a property, you may be liable for capital gains tax (CGT). This tax is based on any increase in value since the time of the first purchase.
The principal marital home is exempt from capital gains tax, if it remains your principal residence.
However, capital gains tax may apply if the formal division of the home into two separate flats applies to the half that is no longer your main residence.
Regarding apartments that are rented, the CGT will be applied at the time of their sale, since they are investment properties.
Stamp Duty on Property Transactions (SDLT)
Stamp duty is payable when the ownership of a property changes, even if it is a transfer between former spouses. However, the transaction may be exempt from stamp duty if it is part of a formal divorce settlement.
Inheritance Tax (IHT)
There may be inheritance tax implications when transferring assets from one person to another, if the person transferring them dies within seven years.
Transfers between a married couple are exempt from IHT.
Remarriage as a tax mitigation strategy
Transfers between married couples are exempt from CGT, meaning that if you temporarily remarry, you could transfer the flats back to their original owners without incurring immediate CGT.
However, remarriage could have implications for other areas of your life, such as new relationships, inheritance rights, wills and any financial and legal arrangements.
I recommend that you consult a solicitor who specialises in family law to advise you on whether this approach would work and whether the legal costs and fees would outweigh the costs of CGT and SDLT.
Transferring Investment Properties After Divorce
Sarah Arora answers: To transfer ownership of the two investment properties to their original owners, I suggest you:
1. Obtain updated property valuations to understand potential capital gains tax liabilities.
2. Consult with a tax advisor and attorney – they will be able to provide you with personalized advice on the best approach and ensure the correct documents are completed and filed.
3. Agree on a transfer process – A formal agreement should be drawn up on how the properties will be transferred back to the original owner, including timeframes and any financial reimbursement.
4. Completing the paperwork: The lawyer will take care of all the paperwork required to transfer ownership of the properties, including transfer deeds and documents for the Land Registry.
5. Report and pay tax – The transfer must be reported to HMRC and you will need to settle any tax due (usually within 60 days of the property being transferred).
Things to consider for your financial future
Sarah Arora answers: Looking ahead, I suggest:
1. Review your wills – make sure they are up to date and reflect the new ownership structure.
2. Plan for retirement: Consider how the new structure will affect your future financial stability.
You are currently drawing on your savings and rental income, with a few years to go before your state pension kicks in.
Make sure your financial planning takes into account property maintenance costs.
Changes: Chris Springett says CGT is now only charged two years after a couple split up
Chris Springett, Private Client Tax Partner at Evelyn Partners, responds: The transfer of an asset, whether by sale or donation, is a taxable event for capital gains tax purposes.
In the case of a sale, CGT is charged on the difference between the proceeds of the sale and the base cost, with deductions for sales and purchase expenses.
In the case of donations, the market value of the property replaces the proceeds from the sale in the calculation.
It is not possible to circumvent this rule by making a sale at an artificially low price instead of a gift, as market value will still be used if sold at a reduced value in a non-commercial transaction.
The exception is that married couples and civil partners who are not separated are allowed to transfer assets between them without capital gains tax consequences.
There is no taxable disposal and in the hands of the recipient the base cost of the asset is the original base cost, not its value at the time of transfer.
The end of this exception is not always the point of divorce. At the time the marriage ended, couples could only transfer assets to each other without paying capital gains tax until the end of the tax year in which they separated.
From April 2023, the exception ends two years later, on the third April 5 following the separation. However, the exception ends when the marriage is dissolved if that happens earlier. There are now also more generous rules around formal divorce agreements.
Returning to the rules that apply based on your date of separation, you mention that this transfer was agreed upon when you divorced.
If this was formally established through a court order or contract, it may be that there was a provision at an earlier date, but this would depend on your specific situation.
Otherwise, the normal CGT rules for transfers apply, and each of you will pay tax on the disposal of the half of a flat that you transfer to the other (assuming you own it equally).
You will need to report the sales to HMRC and pay any applicable capital gains tax within 60 days of completion if the apartments are in the UK. The annual capital gains tax exemption is currently £3000 and you would normally pay 24 per cent tax on estimated gains above this amount.
One option worth exploring is the special exemption for the exchange of joint interests in land. Under this provision, it is possible to defer payment of capital gains tax until the properties are ultimately sold.
SDLT is charged on the consideration paid for a property, so if you are not exchanging money for the apartments, SDLT will only be payable if they are mortgaged.
The taxable consideration would be the amount of the mortgage from which the donor was released from liability at the time of the transfer.
To carry out the actual transfer of ownership, you will likely need a lawyer or real estate agent to help you with the forms and with registering the transfer at the Land Registry.
Remarriage would restore the tax benefits of marriage, allowing you to transfer assets between yourselves without paying capital gains tax. However, this is not a decision that should be made solely for tax reasons.
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