Divorcing couples are being hit by an “unintended consequence” of the so-called second homes tax, a lawyer has warned.
Alan Barr (right), head of personal tax at Brodies, said that many divorcing couples keep shared ownership of a family home due to children still living there – but the partner who moves out is hit with a huge tax bill if they want to buy a new property to live in, even if it becomes their main residence.
The controversial second-home tax, known officially as the Additional Dwelling Supplement (ADS), charges holiday-home buyers and investors an extra 3 per cent of the purchase value on top of the existing Land and Buildings Transaction Tax (LBTT).
However, Barr warned that people who are not looking to benefit from renting out a second property were also being hit.
He said: “If you have a situation where one half of a couple moves out but still owns part of the matrimonial home for financial reasons, especially relating to dependent children, but then want to buy a new place to live, they are hit with the tax.”
Under the regulations, if the person who is buying a new property passes on their stake to their ex-partner within 18 months of buying the new property, they can become exempt from the tax – but Barr said it often takes longer to sort out a family’s financial details or one partner may want to retain a stake in the family home to ensure stability for dependent children.
In some cases, the cost of ADS could be more than the price of the LBTT on an averagely priced home in a city such as Edinburgh. The cost of ADS on a £300,000 property would be £9,000, while LBTT would come to just £4,600.
Barr said: “I am told by my colleague in matrimonial law that 18 months is not a long time at all in these situations. This could potentially affect a large proportion of people who are getting divorced.”
Divorce arrangements which see one half of a couple handed a buy-to-let property they jointly owned during their marriage, while the other partner takes the main residence, could also see the former hit with tax when they try to buy a new place to live.
Richard Loudon, senior property partner at Simpson & Marwick, said: “There are still so many grey areas that cannot entirely be clarified for people, which means they are unable to budget for the future when looking to buy a new property after getting divorced. They just do not know for sure if they are going to be hit with an additional tax bill.”