Capital Gains Tax

How a new tax breaks up marriages on the mainland

Scores of couples flock to untie the knot to avoid the levy imposed by government on home sales

PUBLISHED : Thursday, 07 March, 2013, 12:00am
UPDATED : Thursday, 07 March, 2013, 6:12am

Mainland couples are flocking to divorce to avoid a new property sales tax imposed by the government, after it left open a loophole for those who end their marriages.

Government marriage registration offices, which also handle divorces, were swamped by couples trying to untie the knot, with one newly separated woman saying yesterday that she was heading off to sell a property.

Last Friday, the government issued rules to rein in housing prices, including a nationwide capital gains tax of 20 per cent on profits owners make from selling residential property.

But the terms allowed couples with two properties who divorced and put each house into one person's name to then sell them tax-free under certain conditions, after which they could remarry, state media said.

At a registry in Shanghai, a middle-aged woman checked her freshly minted divorce certificate before rushing off to complete a property sale.

"I'm heading to the property trading centre [in the] afternoon," she said, declining to be identified.

Those divorcing included at least one pregnant woman, the Shanghai Daily said.

"She told me she came here to avoid the possible loss in a property transaction, and I could say nothing," the newspaper quoted a harried official at another registry in the city, which had seen divorces double, as saying. "I told all of them to come here again for remarriage registration."

Guangzhou, Harbin and Ningbo had also reported rising divorce rates after the tax was announced, reports said.

Sample calculations they cited showed the move could save tens of thousands of dollars in tax.

"They [couples] appear to be in good moods … More than half said frankly that they wanted a divorce for the sake of property," an official was quoted as saying by the Ningbo Daily Newspaper website.

An exemption for the tax is available for vendors who are selling their main home and have owned it for more than five years.

The Shanghai Civil Affairs Bureau confirmed the planned tax had triggered a divorce boom, but declined to give a total for the city, the Shanghai Daily said. Couples were citing "lack of mutual affection" as the reason to separate, it added.

An official cautioned wives to beware, however, warning that some unfaithful men might actually want a permanent divorce.

Failed marriages are on the rise on the mainland, with about 2.87 million couples divorcing in 2011, up 7.3 per cent from 2010, the latest government figures showed.

"Some men might trick their wives into getting a divorce using the tax as an excuse. But they might have a mistress and truly want a divorce," He Zhanbiao of Shanghai's civil affairs bureau told the Shanghai Daily.

Housing costs have recently rebounded, prompting the government to intervene again.

Home prices in 100 major cities climbed year on year for a third month in February, the China Index Academy said, with the national average growing 2.48 per cent to 9,893 yuan (HK$12,335) per square metre.