Beijing divorces soar over property tax

Updated: Tuesday October 29, 2013 MYT 1:19:32 PM

Beijing divorces soar over property tax

BEIJING: Beijing’s divorce rate has soared as couples seek to avoid a property tax imposed earlier this year by using a loophole for those whose marriages end, state media reported Tuesday. Nearly 40,000 couples divorced in the Chinese capital in the first nine months of this year, up 41 percent on the same period in 2012, the Beijing Youth Daily said, citing official figures.In March China introduced a nationwide capital gains tax of 20 percent on the profits owners make from selling residential property.
But the terms allow couples with two properties who divorce and put each house into one person’s name to then sell them tax-free under certain conditions – after which they can remarry.
The growth rate in divorces was “far higher” than in the previous four years, the newspaper added.
“The exceptionally fast growth is related to tax evasion by some people taking advantage of a loophole in the (new) property purchase regulations introduced by the government,” it quoted Li Ziwei, a marriage expert and former civil affairs official in Beijing, as saying.
Couples in other first-tier cities – where property prices have rocketed in recent years – have also turned to the practice to avoid the capital gains tax, which can amount to tens of thousands of dollars, the paper said.
Homeowners were previously taxed at just one or two percent of the sale price.
A Shanghai marriage registration office – where divorce applications are also processed in China – has put out a sign saying: “There are risks in the property market, think twice before you get divorced,” the Beijing Youth Daily added.
Property prices are a sensitive issue in China and authorities have sought for the past three years to control their rise.
As well as the capital gains tax, other measures have included restrictions on purchases of second and third homes, higher minimum down-payments and taxes on multiple and non-locally owned homes in some cities. – AFP

October 30, 2013, 5:31 PM

Property Measures Drive Divorces in China

Couples in China’s capital city are splitting at a record pace, and dodging the taxman is part of the reason.

The number of divorces in China’s capital city in the first nine months this year jumped 41 % to 39,075 cases compared to the same period a year earlier. This also exceeds 2012’s full-year figure of 38,197, which was a 15.8% rise from 2011, according to data from the Beijing Civil Affairs Bureau.

In the first half of the year, there were 25,396 divorce cases, up 45% from the 17,485 cases recorded in the same period a year earlier.

Nationwide, the number of divorces rose roughly 21% to two million in the first nine months this year. In 2012, the number of divorces in China rose 8% to 3.1 million cases, according to data from the Ministry of Civil Affairs.

Perhaps many of these couples have grown apart or discovered irreconcilable differences, as so many couples do. But officials say Beijing’s effort to control property prices is the more likely culprit.

“The larger-than-usual rise in divorces could be attributed to the property policies,” said Li Ziwei, vice president of the Beijing Marriage and Family Building Association. “People are thinking of their own interests, and if a divorce enables them to save on paying taxes, or to qualify to buy an additional home, who’s to judge them?”

In March, China’s State Council, or cabinet, said it would strictly enforce a 20% tax on profits from the sale of the seller’s second or subsequent home. Typically, most sales are taxed at only 1% to 3% of the home’s value. In days following the announcement, staff at marriage registration centers in Shanghai and Nanjing said that there was arush of divorces and had to extend their opening times.  So far, however, only Beijing city has implemented this capital gains tax.

A rush to divorce isn’t new in China. In 2010, when cities rolled out restrictions limiting families to only one additional home purchase, many couples sought a divorce to bypass the rules. Some marriage registration centers have also put up signs — “There are risks in the property market, take heed in a divorce” is one example — to warn people about the risks of divorcing for property gains.

This is how it works:

If a couple owns two or more homes jointly and wants to sell one, they would have to fork out the capital gains tax. If the couple divorces, each party would have one home registered in his or her name. When that home is sold, no capital gains tax would be levied.

Major cities such as Shanghai and Beijing are having a harder time curbing rapid price gains and have implemented their own tightening measures. Average housing prices in Beijing rose 16% in September from the same period a year earlier, above the 14.9% rise in August. This is higher than the average 8.2% gain in home prices across 70 Chinese cities last month.

To be sure, Beijing has seen a rise in divorce cases over the years, and this could be attributed to changes in value system and the lack of education young people have regarding commitments in a marriage, said Ms. Li. She said that divorces are also rising in cities where there is strong economic growth.

“In cities where there is development in the economy and society, the stigma of a divorce is diminishing. People are placing more value in the freedom to choose,” said Ms. Li.