When couples divorce, property often becomes the last loose end to tie up.
Even when emotions have settled, the financial and tax side can stay tangled for years.
If you still co-own a property with your ex — especially a second home or rental — and you’re now thinking about selling or buying them out, it’s vital to understand how HMRC treats it.
Because one wrong assumption can lead to a much bigger tax bill than expected.
🎥 Watch the full video: Selling a Property You Own With Your Ex – What You Need to Know About Tax and Legal Costs. Video available tomorrow – 29 October
1. When a Court Order Is in Place
In many divorce settlements, a court order will specify what should happen to jointly owned assets — including property.
For example, the order may instruct that “the property be sold on the open market, and the proceeds divided equally between both parties.”
That instruction forms the legal basis for the sale, even if both parties later agree to a different outcome — such as one person buying out the other.
In that case, the Solicitor must usually apply for a variation to the order before the transaction can proceed.
This small step has big tax consequences.
If the transfer happens because of the court order or its approved variation, HMRC applies what’s called “no gain/no loss” treatment between former spouses.
2. What Does “No Gain/No Loss” Mean?
It means the spouse who gives up their share is not immediately taxed on any capital gain at that point.
Instead, the property’s original base cost is transferred to the receiving spouse.
So, when the property is eventually sold in future, the whole gain (including their ex’s share) may then fall on the person who kept it.
It’s effectively a deferral of tax — not an exemption.
This can be fair where one party takes full ownership, but it’s essential that everyone understands what they’re agreeing to.
If there’s no court order, this “no gain/no loss” rule doesn’t apply.
HMRC then treats the transfer as a normal disposal at market value, and CGT becomes payable immediately by the person giving up their share.
3. Second Homes: No Private Residence Relief
In many cases, the properties involved are second homes or rentals, not main residences.
That means Private Residence Relief (PRR) doesn’t apply. You can read more about how Capital Gains Tax timing affects when to sell a rental property in our guide, When Should You Sell a Rental Property? (UK Tax Tips)
For most people, PRR shelters gains on your main home from CGT.
But for second homes or investment properties, the gain is fully taxable (subject to each person’s annual CGT allowance).
4. CGT Rates Depend on Income Bands
For the 2025/26 tax year, gains on residential property are taxed at:
- 18% if you’re a basic rate taxpayer, or
- 24% if you’re a higher or additional rate taxpayer.
Your rate depends on your total taxable income that year.
And remember — if you agree to cover your ex’s share of CGT as part of the settlement, that’s not just a goodwill gesture; it’s part of the real financial cost of the buyout.
5. SDLT on a Buyout or Transfer
If the property has a mortgage, and one party takes on the other’s share, HMRC normally treats that share of the mortgage as “chargeable consideration.”
That means Stamp Duty Land Tax (SDLT) may apply — even if no cash changes hands.
However, where the transfer happens under a valid court order and qualifies for no gain/no loss treatment, the transaction can often fall outside SDLT altogether.
The logic is that the transfer forms part of a court-mandated financial settlement, rather than a standard property purchase.
If SDLT is due (for example, where the property is a second home and the mortgage element counts as consideration), the surcharge rate is 5%.
This is why getting tailored advice before instructing your Solicitor is critical — the difference between “no SDLT” and “5% SDLT” can hinge on one legal clause.
For a full breakdown of Stamp Duty Land Tax rates and rules, see our upcoming guide What Is SDLT and How It Works in the UK
6. Latent Costs: The Hidden Expenses Behind a Sale
“Latent costs” are the hidden or delayed costs that can surface as the sale or transfer progresses.
They’re often mentioned by Solicitors but not fully understood at the start.
Common examples include:
- Legal fees for varying a court order or updating ownership documents.
- Valuation and conveyancing costs.
- CGT on the ex-partner’s share (especially if you’ve agreed to cover it).
- Future property-related costs, such as cladding or remediation work.
They can delay completion, reduce proceeds, or affect how much you actually walk away with.
7. Planning and Timing Are Everything
Even with a court order in place, there’s still scope for sensible tax planning.
You should review:
- Timing – which tax year the sale or transfer falls in.
- Eligibility for no gain/no loss treatment.
- CGT reporting – 60-day deadline from completion.
- SDLT implications if other properties are owned.
Getting these things reviewed before instructing Solicitors can save time, money, and stress later.
If you’re in a similar situation but not married or covered by a court order, our upcoming post Selling a Property With a Partner – What Happens If You’re Not Married explains how the tax rules differ.
Key Takeaways
- A court order or its variation determines how HMRC views the transfer.
- “No gain/no loss” defers tax but doesn’t remove it entirely.
- Second homes attract CGT — no Private Residence Relief.
- SDLT may not apply if the transfer is under a valid court order, but where it does, the surcharge is 5%.
- Latent costs like your ex’s CGT or future works can change the figures.
- Always seek advice before signing or varying a court order.
Final Note
Property transfers after divorce aren’t just legal transactions — they’re tax events.
Whether you’re selling, buying out, or varying a court order, it pays to get a clear calculation before making any decisions.
If you’re in this position and need tailored advice, get in touch with Grace Certified Accountants.
We’ll help you see the full picture — before HMRC does.