Do we have to pay tax when we sell our house in a divorce?
There are taxes that you may have to pay, such as capital gains tax, stamp duty and potentially income tax, depending on your situation.
If you’re going through a divorce, there is a lot that you will need to consider, and selling the marital home can be one of the biggest things to deal with. You want to make sure that you’ve got all of the information in front of you when you’re making a decision like this, especially when taxes are involved.
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In the event of a divorce, income tax isn’t usually affected. Even if there are maintenance payments scheduled in the divorce, there is no tax relief on maintenance payments. This is because they are tax-free for the recipient, and are paid out of the taxable income of the payer, meaning income tax isn’t something that you need to be too concerned by.
What about Capital Gains tax?
If you’re selling the marital home or other assets from your marriage, then you may be affected by capital gains tax. If possible, it’s best to try and transfer any assets between you and your ex-partner in the same tax year that you lived together; this will then mean that the assets are transferred with no gain, no loss. If you transfer them in a tax year that you have not lived together, the assets in question can be taxed at market value, which could be a considerable amount.
If you’re not sure if you will have to pay capital gains tax, you can check on our Tax calculators.
Do I need to worry about Stamp Duty?
Stamp duty may also affect you, depending on the circumstances of your divorce. You will need to pay stamp duty land tax if you and your ex-partner agree to split the property, and there is also a ‘second home’ surcharge that you may need to be wary of. With this, if you or your ex-partner is trying to buy another property to live in, but still has a share of the marital home, it will incur an extra 3% stamp duty tax. You can avoid this 3% tax if you have a consent order approved by the court, however.
What tax do I have to pay on the home?
A married couple that has lived together have got 18 months to transfer property from one to the other completely free of capital gains tax, known as private residence relief. Whilst this is a handy way to avoid the tax, the rules are changing and will soon drop from 18 months to 9, meaning any transfers will need to be done as quickly as possible to remain tax-free.
What else is considered?
As with all tax, your income will be assessed. If you have another property that’s due to be sold, or soon to be inherited, this may also be considered. It can be worth transferring property in separate tax years if possible, as this can allow you to maximise the annual tax-free allowance if you’re unable to reach an agreement within the 18 months tax-free period.
What about Mortgage Interest and Property Tax reductions?
When it comes to property tax, things can be more difficult. In a perfect world, one partner will give the other person the right to claim, but it doesn’t tend to work out that way. There are a few points to bear in mind when trying to decide who gets the claim-
- The spouse that keeps the property doesn’t always have the right to claim the tax reductions if you owned the house between you.
- You can’t both claim the full reduction
- There isn’t usually a 50:50 right to the deductions, and so it will need to be considered who has the right to claim.
Usually, if one partner can prove that they primarily made the payments for the mortgage and the property tax, then they will be the one eligible for the reduction. If you want to sell your marital home and are looking for a quick sale to avoid the capital gains tax, visit Quick Sell Your House today.
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