Talking Property:Both parties in a separation/divorce should be relieved of stamp duty if they need to buy again, says Ann O'Neill

Much has been written in recent days on the issue of stamp duty payable post separation or divorce, on foot of the Fianna Fail proposal to abolish the tax for first-time buyers with no cap on the price of the property purchased.

What has appeared in print to date has led to confusion and hordes of separating spouses contacting their legal advisors, seeking confirmation that they will be treated as first-time buyers following their separation and/or divorce.

To clarify the issue, there is - and has been for some time - a small stamp duty relief afforded to some separating couples. Where a couple separate or divorce and one party transfers their interest in the family home to the other party, the transferring party is then in a subsequent purchase treated as a first-time buyer for stamp duty purposes.

Unfortunately, this is a very specific and limited relief and afforded only in circumstances where the family home can be "saved" for the benefit of one of the parties to the marriage. This relief is not available where a couple find themselves in such financially straitened circumstances that neither party can realistically afford to buy out the other party's interest in the property, resulting in the sale of the family home and both parties being obliged to fund alternative accommodation post separation. Full stamp duty rates are then applicable to both subsequent purchases.

The restrictive nature of this relief has long been a source of frustration to family lawyers, as it appears to be entirely anomalous to allow a financial relief from a particularly punitive tax to one party to a marital breakdown, where there are sufficient financial resources to allow a buyout of the family home, and deny this relief where the lack of financial resources preclude this alternative.

The Government already profits substantially from marital breakdown by way of Vat payable on legal fees at the rate of 21 per cent, which Vat is not reclaimable by either party, unlike Vat on many commercial transactions.

For many couples facing marital breakdown, the financial consequences are potentially catastrophic and the legal fees faced are punitive enough without adding an additional 21 per cent as the Government take on top.

Furthermore, it has long been recognised that it is hugely difficult for parties in this jurisdiction to cope with the financial consequences of separation in that property prices, especially in the Dublin area, are so expensive that it is almost impossible to facilitate the funding of two separate homes, where one previously existed.

The implication of much of the recent coverage of the effect of the expansion of first-time buyers stamp duty relief on separated or divorcing couples is that the parties will enjoy a bonanza!

As most separations and divorces are conducted in the Circuit Court jurisdiction - where the value of the assets is limited and the equity couples enjoy in family homes is similarly so - this is quite patently risible.

The net benefit of this relief presently offers a saving to a first-time buyer of between one and 3 per cent of the purchase price of a property, depending on the cost of the property. The ultimate cut-off point for this saving is in respect of property purchases under €635,000, as thereafter first-time buyer rates and full rates of stamp duty are identical.

The proposed changes in the legislation would allow for an unlimited purchase price for a qualifying spouse without same being subject to stamp duty.

The reality is, however, that de facto limitations are applied by virtue of an individual's ability to borrow and then repay loans drawn down.

The real issue to be addressed by the Government, therefore, is whether there should be an extension of this relief to cover all parties separating and divorcing, rather than limiting the class of individuals who may avail of the relief following separation.

The reality is that the ability of separating parties to purchase property is often even more circumscribed than that of first-time buyers, as in many, indeed if not most cases, the couple face the additional financial responsibility of caring for and maintaining children.

Clearly, in the event that the Government does not cap the relief, then certainly some first-time buyers, including separating couples, will be substantially aided by family members to buy properties which they would in the normal course of events not contemplate purchasing.

This could potentially allow for a redistribution of family wealth, by way of equity release from existing properties and may in the short term reduce the stamp duty haul for the Government.

There is, however, a very strong argument that public policy should encourage such activity as being in the best interests of ensuring that the younger generation's housing requirements are adequately catered for, without the intervention of the public purse.

Other significant tax consequences flow in respect of capital transferred to assist such purchases, which will act as a natural bar to abuse of this relief.

Ann O'Neill is a solicitor practising in family law with McKeever Rowan Solicitors