Matrimonial transfers, the process of adding or removing someone from the title deeds of a property occur when a couple gets married, enters a civil partnership, or gets divorced or separated.
This is a comprehensive guide for individuals involved in matrimonial property transfers. The content will explain the legal process of transferring property between spouses or partners during divorce or separation, the tax implications, and the necessary steps involved in transferring property ownership between partners
We’ve written this for:
Couples going through a divorce or separation
Individuals involved in property transfers between spouses
Legal professionals advising clients on matrimonial property transfers
Property owners seeking to update ownership during divorce
After reading you should understand the intricacies of managing property transfers during separation. You should also appreciate the benefits of seeking legal assistance from Lawhive to ensure a smooth and legally compliant process.
Reasons for matrimonial property transfers
Property transfers are common during divorce or separation, where one partner may transfer their share of a jointly owned property to the other.
This is because during divorce and separation, assets need to be divided, with a home being the most significant asset that most people own.
Property transfers are often used as part of financial settlements, ensuring fair division of assets during separation.
They also occur for tax reasons to take advantage of capital gains tax reliefs, or as part of estate planning so property can be left to children or other close family members when a partner dies.
A matrimonial transfer can also be used to create an informal agreement between partners where the ownership shares are changed when one partner is paying off the mortgage and wants to get some equity for their money.
Legal process for matrimonial transfers
There is an established legal process to follow for matrimonial transfers. If you are considering using this legal instrument following this process will ensure you navigate a matrimonial transfer smoothly.
Step 1: Agreement between parties - reaching an agreement on property ownership between both parties is essential before proceeding with the transfer.
Seeking legal assistance here can help smooth the process. It is important for both parties in a relationship to get legal advice so that they understand the implications of the agreement.
Step 2: Obtaining consent – you will need to notify third parties that have an interest in the property, this includes mortgage lenders if the property is under mortgage. They need to be notified of a transfer and give their written consent.
Lenders will have different requirements, which depend on circumstances. Some lenders require the new owner to become jointly liable on the mortgage.
It is advisable to get a court order before a transfer takes place as this prevents Stamp Duty Land Tax applying to the transfer.
Additional consent may be required for leasehold properties or properties with a restriction on their title. This depends on your individual circumstances and should be discussed with a solicitor.
In a matrimonial transfer or civil partnership transfer, both individuals may be able to use the same conveyancer. A solicitor can advise you on your best option.
Step 3: Drafting the transfer deed – now the solicitor should prepare the transfer deed documents for signature. They start by reviewing the property title deeds to check whether there are any restrictions on the transfer.
When drafting the documents the solicitor should include all the necessary information about both parties and the property. Then all parties must meet with the solicitor to sign the agreement in front of an impartial witness.
Step 4: Registering the transfer – when each party has signed the transfer, it must be registered with HM Land Registry and the title should be updated to reflect the new ownership. The Land Registry charges a fee which is dependent on the property value.
Tax implications of matrimonial transfers
There is the potential for stamp duty land tax (SDLT) when transferring property between spouses and civil partners.
You will have to pay SDLT when the chargeable consideration for the exchange of the share transfer is more than the current SDLT threshold for your property type.
Here’s an example from Gov.uk of when you have to pay SDLT when no money changes hands for a transfer of ownership:
The owner of a property valued at £700,000, with an outstanding mortgage of £600,000, transfers half the property to their partner when they marry in October 2022. Their partner takes on 50% of the mortgage (£300,000).
By taking liability for the mortgage, the owner’s partner has given ‘chargeable consideration’ of £300,000 for their share of the property, which is £2,500 Stamp Duty Land Tax (0% of £250,000 + 5% of £50,000).
Here’s an example of when you do not have to pay SDLT:
A house has a value of £180,000. The owner of the property has equity of £90,000 and an outstanding mortgage of £90,000. The owner transfers a half share of the property to their partner.
Their partner:
pays cash for half of the equity — £45,000
takes responsibility for 50% of the outstanding mortgage — £45,000
So, the chargeable consideration for Stamp Duty Land Tax is £90,000, made up of the:
Cash payment
50% share of the outstanding mortgage
£90,000 is below the current Stamp Duty Land Tax threshold so there’s no tax to pay. You must still tell HMRC about the transaction on a Stamp Duty Land Tax return.
Spouses and civil partners can transfer assets from one person to the other without needing to pay capital gains tax (CGT). This is known as spousal exemption.
However, if you divorce or separate from your spouse or partner CGT can become payable.
CGT applies if you give a gift to your spouse or partner after separating and not living together in the same tax year.
Under new rules established in April 2023, spouses who separate can transfer assets between each other without them being subject to CGT for an unlimited time if the assets are subject to a formal consent order.
When there is no formal consent order the time limit is the earliest date of:
The date the court grants a divorce, dissolution of a civil partnership, or judicial separation
Three years after partners stop living together
When spouses or civil partners separate, they now have up to three years after they stop living together to transfer any benefits in a financial settlement and benefit from the CGT exemption.
The Principle Private Residence Relief is a tax relief that can apply when a property is transferred between spouses and partners when they divorce or separate. It can apply to part of or the whole property. This means there may be no CGT on the whole or part of the gain realised from the transfer.
Your spouse or partner may have to pay CGT if they later sell the property. The gain is calculated on the difference in value between when you first owned the asset and when it is sold.
When it comes to second homes, their sale or transfer can be subject to CGT. You will need to refer to the tax-free limit, if the property value has not grown more than the limit you won’t have to pay CGT.