The recent disclosure by the Deputy Prime Minister, Angela Rayner, concerning an underpayment of Stamp Duty Land Tax (SDLT) has drawn significant public attention, not merely for its political ramifications, but for the complex intersection of family law, property law, and taxation that it highlights.
As practitioners, instructions are frequently received from individuals navigating the financial aftermath of divorce. Rayner’s situation underscores how easily one can fall foul of HMRC’s interpretation of ownership and tax liability—even where professional advice has been sought. The matter serves as a timely reminder: post-divorce financial arrangements can carry latent tax exposure, particularly where trusts, property, or ongoing residence arrangements are involved.
Rayner and SDLT
In September 2025, Angela Rayner admitted to underpaying SDLT on the purchase of a flat in Hove, valued at approximately £800,000. At the time of the transaction, she applied the standard SDLT rate, on the basis that she no longer had any beneficial interest in her previous home, which had been transferred into a trust for her disabled son following her divorce.
However, under Schedule 4ZA to the Finance Act 2003, a higher rate of SDLT applies where a purchaser owns an interest in another residential property. In Rayner’s case, HMRC was entitled to deem her trust interest in the former family home as continuing beneficial ownership, thereby attracting the 3% surcharge on her new acquisition.
Despite having acted on legal advice at the time, it was only after further counsel opinion was obtained that the SDLT liability was fully appreciated. Rayner has since referred herself to the appropriate regulatory authorities and is working with HMRC to regularise the underpayment.
Trusts, Residence, and Deemed Ownership
This case highlights several areas of particular concern post-divorce:
1. Deemed Ownership and Beneficial Interest
The SDLT legislation does not rely solely on legal title. Ownership for these purposes includes equitable interests and extends to interests held via trusts. Where an individual has the right to occupy, benefit from, or control property via a trust, even where the asset is held for the benefit of a third party, they may be deemed to hold an interest for SDLT purposes (see HMRC’s SDLT Manual, e.g., SDLTM09800 et seq.).
The principle is not dissimilar to that adopted in Ramsay v IRC [1982] AC 300, where the House of Lords determined that courts must consider the substance, not merely the form, of a transaction in assessing its tax implications. While Ramsay is primarily a general anti-avoidance principle, the underlying approach of substance over form is increasingly reflected in HMRC’s scrutiny of family and trust arrangements, including those arising post-divorce for asset protection or care planning.
2. Ongoing Residence Post-Separation
Where parties remain resident in the marital home under a “nesting” arrangement post-separation, a scenario common in family proceedings involving children, there may be continued beneficial interest even after legal transfer, particularly if no market rent is paid. The courts and HMRC may scrutinise the arrangement to assess actual benefit, rather than relying on the transfer of legal title alone.
In Goodwin v HMRC [2021] UKFTT 193 (TC), for instance, the taxpayer was denied Private Residence Relief where inconsistencies arose between claimed residence and documentary evidence submitted to HMRC.
3. Capital Gains Tax (CGT) Considerations
While SDLT is the focus of the Rayner case, similar issues can arise in relation to Capital Gains Tax (CGT) on disposals post-divorce. The existence of beneficial interests, trust arrangements, or continued occupation can affect the availability of reliefs and the calculation of gains. Practitioners should ensure that CGT implications are considered alongside SDLT and other tax exposures.
Post-Divorce Tax Risk: Key Considerations
The intersection of family breakdown and tax law requires careful navigation. Parties emerging from divorce proceedings should be advised to consider the following:
1. Seek Interdisciplinary Advice
A family solicitor alone may not be equipped to advise on SDLT, CGT, or trust law implications. Where property and trust interests arise (particularly where children or vulnerable dependents are involved), it is prudent to instruct:
- A tax solicitor or Chartered Tax Adviser (CTA)
- A trusts and estates practitioner (TEP)
- A conveyancer with SDLT expertise
- A forensic accountant, where valuations or historical ownership need clarification
2. Insist on Written Advice
As HMRC investigations often occur years after a transaction, contemporaneous documentation of legal advice received is critical. While reliance on professional advice may mitigate penalties under Paragraph 19, Schedule 24 FA 2007, it must be demonstrably reasonable and properly recorded.
3. Ensure Consistency Across Legal and Tax Filings
Discrepancies between residence claims made in divorce proceedings, council tax registration, and SDLT or CGT returns can lead to denial of reliefs or application of higher rates. Legal advisors should co-ordinate declarations to avoid conflicting representations.
4. Be Proactive in Addressing Errors
Where an error is identified, early engagement with HMRC under the Contractual Disclosure Facility (COP9) may provide a more favourable outcome than reactive investigation. Voluntary disclosure can avoid criminal investigation and lead to reduced penalties.
Angela Rayner’s case is not one of deliberate evasion. Rather, it highlights the inherent risk in complex post-divorce arrangements, even where professional advice is sought and intentions are entirely proper. It is a reminder to all legal professionals, and their clients, that where property, trusts, and changes of residence intersect, the potential for misunderstanding tax consequences is high.
Careful planning, co-ordinated advice, and early corrective action are key to mitigating risk.
If you or your client are in the process of restructuring finances post-divorce, particularly where trusts or multiple properties are involved, consider a full tax review, including SDLT, CGT, and other relevant exposures, as part of the final settlement. The cost of comprehensive advice is invariably lower than the consequences of HMRC enquiry.
References
- Finance Act 2003, Schedule 4ZA
- HMRC SDLT Manual (SDLTM09800 et seq.)
- Ramsay v IRC [1982] AC 300
- Goodwin v HMRC [2021] UKFTT 193 (TC)
- Paragraph 19, Schedule 24 Finance Act 2007
This article is provided for general information purposes only and does not constitute legal advice.
Zubair Dharamsi Gowsigan Gnanakumaran Maisa Riazi
Partner Solicitor Trainee Solicitor
zd@roselegal.co.uk gg@roselegal.co.uk mr@roselegal.co.uk
