My ex and I by no means break up our properties – can we remarry to keep away from tax?

My ex-husband and I divorced amicably in 2021. We both still live in the marital home which we have unofficially converted into two flats. 

It is worth about £600,000 and it is in our joint names. 

We also own the two flats that we we each owned and lived in when we met in 2000. They are worth about £300,000 each, and are also both in joint names. My ex-husband’s flat has been rented since 2000, and my flat since 2010. 

We both retired early and are a few years from pensionable age. The rental income is our only income and we each have very little savings.

We agreed upon our divorce to transfer ownership of the flats back to the original owner but have not got round to sorting out the paperwork for this. 

How do we go about this? Are there tax implications? And if so, would getting remarried temporarily be a way to get this sorted more cost-effectively? S.G

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Harvey Dorset of This is Money, replies: This is by no means a straightforward question. Whatever you decide to do, there are likely to be costs involved.

Given that you rely on rent from the properties as your main source of income, it is worth getting this sorted ahead of your retirement.

Temporarily remarrying will seem like an extreme reaction to some. However, your rationale is that you believe it could remove your capital gains tax (CGT) liability, and also reduce other costs.

It would also put you into murky water in legal terms, though – as remarrying for the sole purpose of paying less tax is something that could be scrutinised by HMRC.

If you are thinking about remarriage as an option, then you should seek legal advice before doing so and consider the above point carefully.

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 would you owe to transfer property? 

Sarah Arora, independent financial adviser at Flying Colours, replies: This question is more complex than it first appears. 

There are a lot of factors to take into consideration, so here’s a breakdown of the steps you need to take to minimise the potential tax implications.

Capital gains tax

When the ownership of a property is being transferred, CGT may be payable. This is a tax based on any increase in value from when it was first purchased.

The main marital home is exempt from CGT, if it remains as your primary residence. 

However, CGT may apply if you formally split it into two separate flats. This would apply to the half that is no longer your main residence.

Regarding the flats that are rented out, CGT will be applicable when you sell them, as they are investment properties.

Stamp duty land tax (SDLT)

Stamp duty is payable when the ownership of the property changes, even if it is a transfer between former spouses. However, the transaction may be exempt from SDLT if this is part of a formal divorce settlement.

Inheritance tax (IHT)

There could be inheritance tax implications when assets are transferred from one person to another, if the person transferring them dies within seven years. 

Transfers between a married couple are exempt from IHT.

Remarrying as a tax mitigation strategy

Transfers between married couples are exempt from CGT, which means if you temporarily remarry, you could transfer the flats to their original owners without incurring immediate CGT.

However, remarrying could have implications on other areas of your lives, such as any new relationships, inheritance rights, wills and any financial and legal arrangements.

I recommend that you consult a solicitor who practices in family law to advise on whether this approach would work and if the costs and legal fees would outweigh the CGT and SDLT costs.

Transferring investment property after divorce

Sarah Arora replies: For you to transfer ownership of the two investment properties back to their original owners, I suggest that you:

1. Obtain up-to-date valuations of the properties – to understand the potential CGT liabilities.

2. Consult a tax adviser and solicitor – they can give you tailored advice on the best approach and ensure the right documents are completed and filed.

3. Agree a transfer process – a formal agreement should be drawn up on how the properties will be transferred back to the original owner, including timing and any financial reimbursement.

4. Complete the paperwork – the solicitor will handle the paperwork required to transfer ownership of the properties, including transfer deeds and documents for the Land Registry.

5. Report and pay taxes – the transfer needs to be reported to HMRC and you’ll need to settle any tax due (usually within 60 days of the property transfer).

Things to think about for your financial future

Sarah Arora replies: Looking ahead, I suggest you:

1. Review your wills – ensure your wills are updated and reflect the new property ownership structure.

2. Plan for retirement – consider how the new structure will affect your future financial stability. 

Currently, you are using your savings and the rental income, with some years before your state pension starts. 

Make sure your financial planning takes into consideration the upkeep costs of the properties.

Chris Springett, partner in private client tax services at Evelyn Partners, replies: Disposing of a property, whether by sale or by gift, is a chargeable event for CGT.

For a sale, CGT is charged on the difference between the sale proceeds and the base cost, with deductions for expenses of sale and purchase. 

For gifts, the market value of the property replaces the sale proceeds in the calculation. 

It is not possible to get around this rule by making a sale at an artificially low price instead of a gift, as the market value will still be used if you sell 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 themselves without CGT consequences.  

There is no chargeable disposal, and in the recipient’s hands 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 your marriage ended, couples were only able to transfer assets between themselves CGT-free until the end of the tax year in which they separated. 

From April 2023, the exception ends two years later, on the third 5 April following a 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.

Looking back to the rules applying based on your date of separation, you mention that this transfer was agreed when divorcing. 

If this was set out formally though a court order or contract, it could be that there was a disposal 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 be taxed on the disposal of the half share of a flat you transfer to the other (assuming you own them in equal shares). 

You will need to report the disposals to HMRC and pay any CGT due within 60 days of completion if the flats are in the UK. The annual CGT free exemption is currently £3,000, and you would normally pay CGT at 24 per cent on the deemed profit over this amount.

One option worth exploring is the special relief for the exchange of joint interests in land. Under this provision you may be able to defer the CGT until the properties are ultimately sold.

SDLT is charged on consideration paid for a property, so if you are not exchanging money for the flats then SDLT will only be due if they are mortgaged. 

The chargeable consideration would be the amount of mortgage from which the giver was relieved from responsibility for on transfer.

To make the actual transfer of the property, you are likely to need a solicitor or conveyancer to help you with the forms, and registering the transfer with the Land Registry.

Remarrying would restore the tax benefits of marriage, making it possible for you to transfer assets between yourselves free of CGT. This is, however, not a decision that should be taken solely for tax reasons.