Capital Gains Tax

Couples with second homes file for divorce to beat capital gains tax

Owners of second homes facing austerity move say policymakers are divorced from reality

PUBLISHED : Saturday, 23 March, 2013, 12:00am
UPDATED : Saturday, 23 March, 2013, 4:39am


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This warning posted on a sign board at a marriage registration office in Shanghai was stark: "Beware the risks arising from the housing market. Have second thoughts before deciding to get divorced."

The message that appeared in southwestern Minhang district has become the talk of the town as hundreds of couples filed for "divorce" to beat a new capital gains tax on second homes.

"Nobody wants to do so because it's painful for a couple to split up - in legal terms," said a 30-year-old woman identifying herself as Xiao Lu.

"But we have no choice but to get the divorce certificates because the documents save our families hundreds of thousands of yuan."

Admitting that the divorce was just a tactic rather than a real split with her husband, Xiao Lu wasted no time in blaming government policymakers for her dilemma.

Beijing announced recently it would charge property sellers a 20 per cent capital gains tax to curb the red-hot housing market.

Those owning just one flat are exempt from the tax if they sell their home. But households offloading a second home or more faced potential tax bills of several hundred thousand yuan on those properties.

"Obtaining a divorce certificate is the best answer to the problem," said Xiao Lu, noting that if each divorcing party owned one flat, they could sell without paying the tax. "It's just about documentation so we can still live as a united family."

Mainland residents use the term "shameless" to describe local authorities over a raft of policies that infringe on their personal interests.

The Minhang marriage registration office's warning was the government's tacit acknowledgement of homeowners' tricks, rather than a genuine reminder of the hardships of divorce, according to several local couples who said they were considering going through the paperwork to nullify their marriages.

An official at the registration office admitted that the number of divorces had risen sharply since the central government announced the tax.

"We don't bother to find out the reasons for the divorces," she said. "Our job is to complete the divorce registrations as long as the documents they provide are complete and accurate."

Each district-level marriage registration office was handling dozens of divorce applications every day, much higher than before the announcement, local media reported.

It is not the first time that mainland couples have rushed to get unhitched to deal with curbs on the property market.

In 2011, when Beijing restricted each family to owning two flats, a soaring number of divorces took place with officials cautioning on the potential social problems arising from the false divorces.