Till taxes do us part: Chinese divorce to skip property tax

Reuters News

3/6/2013 4:41:49 AM - Reuters News

By Pete Sweeney

SHANGHAI (Reuters) - At Shanghai's Zhabei District marriage registration center, officials divorced a record 53 couples in a single day this week - that's about one every five minutes - as couples rushed to untie the knot to avoid tougher tax laws on home sales.

There were similar scenes in Wuhan, Nanjing and Ningbo as married couples opted for 'quickie', uncontested divorces - costing just a few yuan - that would allow them to split ownership of their properties and sell without having to pay capital gains tax of as much as 20 percent.

Beijing last week signaled it wanted local governments to be tougher in implementing rules to curb property speculation - the tax on gains from selling second homes has been in place for almost two decades but never strictly enforced. Chinese tend to park much of their wealth in real estate as they have few other alternative investment options, and home prices in the biggest cities have risen for 9 straight months.

Reckoning that primary residences owned for more than five years will remain tax exempt, some couples hope that divorcing and dividing up real estate assets will allow them to sell properties as individuals, and not pay tax. Once the sale is complete, they can remarry.

"It's a practical attitude," said Li Li, managing director of International Strategic Group, a real estate consultancy in Shanghai. "It's strange, but policy forces people to do it."

While homeowners and prospective buyers await details on how the tightened property rules will be implemented, the official Shanghai Daily quoted one unnamed official at the Yangpu District registration office as saying the rise in divorces was driven by unapologetic tax evaders, including a pregnant woman.

"I told all of them to come here again for remarriage registration as soon as their transaction is finished," the official told the newspaper.

Requests for city-wide data from the Shanghai civil affairs bureau were not immediately answered. The Shanghai Daily quoted Lin Kewu, deputy director of the bureau's marriage administration, saying the government did not want to release statistics for fear of encouraging the tactic.

The phenomenon is not new. In 2010 and 2011, state media reported that couples resorted to forging divorce certificates so they could skirt restrictions and buy more property.

"I know people who have divorced to evade taxes," said one man who asked not to be named as he waited outside a real estate trade center in Pudong on Wednesday. "But I think marriage is more important than property."

(Additional reporting by Anita Li and Reuters Shanghai bureau; Editing by Ian Geoghegan)