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taxadvisor.uk, Chartered Certified Accountant
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Tax implications of owning a home again post divorce

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Hi. I divorced 4 years ago, and as part of the divorce settlement I gave over the deeds of the marital home to my spouse, who also took on the mortgage in their name (it was a joint mortgage before then). I retained a charge on the property, of between 12.5-20% of the proceeds (after mortgage paid etc, depending on how calculated) when the property is sold, probably in 2-3 years.

I have been renting since then, but am about to buy a house once more. Will my becoming a home owner again have any tax implications for me, when the previous place is sold and I finally realise some money from it? Will the sum I get from the previous place be affected by my new home owning status? I am concerned about this and need to know if it would be in my interest to continue to rent until the house is sold. I hope not, as I am about to exchange contracts on the new place. 

I should add that my home was my main private residence until January 2008, and that the sum I am likely to receive will not represent a profit versus the 50% share of the sum we paid for it originally back in 1997. 

Submitted: 3 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 3 years ago.
Hello and welcome to the site. Thank you for your question.

Yours questions are
[q]
Will the sum I get from the previous place be affected by my new home owning status? I am concerned about this and need to know if it would be in my interest to continue to rent until the house is sold. I hope not, as I am about to exchange contracts on the new place.

[a]
You should look at the properties separately. You left the marital home to your spouse and retained a percentage in it. Any proceeds/gain you get from the sale of that place will not affect your new home owning status. You don't have to continue to rent a property until the house is sold.

[q]
I should add that my home was my main private residence until January 2008, and that the sum I am likely to receive will not represent a profit versus the 50% share of the sum we paid for it originally back in 1997.

[a]
If you have a loss when the house is sold, then you should report the loss on your tax return. This would enable you to carry forward the loss against future capital gains.

More information on loss relief can be found under “how to claim a loss – and time limits for claiming” here

http://www.hmrc.gov.uk/cgt/intro/losses.htm#3

I hope this is helpful and answers your question.


If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

 

Customer: replied 3 years ago.

Hi - thanks very much for this, it's very helpful.


 


There's a quite a lot hanging on this so I just want to double check that I am understanding how this will play out for me if I now buy a house. So before concluding, could you just confirm for me that I have this correct - as follows:



1. I signed over ownership of my share in my previous property to my spouse in 2008, and was removed from title deeds and mortgage liability. I did however retain an interest in the property in the form of the charge on it when it is sold. This charge should, I anticipate, yield between £60,000-£120,000 when the property is sold (depending on how calculated and selling price.)

I originally bought the property with my spouse in 1997. We paid £400,000 for it. (So I am right in thinking that my share can be seen to be £200,000?).

2. I am about to buy another property, with a mortgage, for £198000, and move out of the rented house I have occupied for 5 years.


3. The marital property will be sold sometime in 2016-17, and I should receive my capital from it then. At this point, if it yields £60-£120K I can set my loss versus the £200,000 against tax? Or - at the very least - I will not be liable for Capital Gains Tax on the sum I receive? (This latter possibility is my major concern - that receiving this sum will expose me to an unforeseen tax liability?)


Have I understood this correctly?


 


Many thanks

Jo Shaw


 

Expert:  taxadvisor.uk replied 3 years ago.
Jo, thank you for your reply.

When you signed over ownership of your share to your spouse, the property would have been valued at the time of transfer. Your new base price becomes between 12.5%-20% of that value and not the price paid in 1997.

So if your share of the property has a cost price (based on the valuation at time of transfer and not the original cost of £200k) of say £80k and you yield £100k then your chargeable gain is £20k. You will be able to claim gains annual exempt allowance (currently £10,900) against this gain and the balance will be taxed at 18%, 28% or a combination of both depending on your total taxable income in the year of sale.

If on the other hand, your share of the proceeds results in a capital loss then it will be available fo rcarry forward against future capital gains.


I hope this is helpful and answers your question.


If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

 

taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4881
Experience: FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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Customer: replied 3 years ago.

Thanks - the property was not valued at the time of the transfer. The stipulation of the charge appears in a Land Registry document and in the terms of my decree absolute. But there were no figures attached to it at the time.

Beyond this - the issue of whether I am liable for CGT. How is it affected by my ownership of another property at the point that my old property is sold? If it is immaterial whether I am a homeowner or not, then I can make a choice about whether to buy on this basis. But if my homeowning status affects it, then I need to know.

If I had not divorced...and had continued to own the property with my spouse, and then we had sold and made a profit, we (and I) would not be liable for CGT? That's correct? So I am being disadvantaged by my divorced status and that this is no longer my primary home? Will my ex-spouse pay CGT when it is sold?

Thanks




 

Expert:  taxadvisor.uk replied 3 years ago.
Jo, thank you for your reply.

[q]
the property was not valued at the time of the transfer. The stipulation of the charge appears in a Land Registry document and in the terms of my decree absolute. But there were no figures attached to it at the time.

[a]
You will have to establish a fair valuation at the time of transfer. The Valuation Office should be able to help you with it unless you can establish the valuation from estate agents.

[q]
Beyond this - the issue of whether I am liable for CGT. How is it affected by my ownership of another property at the point that my old property is sold? If it is immaterial whether I am a homeowner or not, then I can make a choice about whether to buy on this basis. But if my homeowning status affects it, then I need to know.

[a]
If you live in a property as your main residence, then any gain from sale of it qualifies for private resisence relief and it is exempt from CGT. You can own more than one property at any one time, but you can only claim one property as main residence at a time and it is that property that qualifies for private residence relief.

[q]
If I had not divorced...and had continued to own the property with my spouse, and then we had sold and made a profit, we (and I) would not be liable for CGT? That's correct? So I am being disadvantaged by my divorced status and that this is no longer my primary home? Will my ex-spouse pay CGT when it is sold?

[a]
If you remained as a couple at any point in the tax year of sale then the gain would escape CGT. You could have sold the property within 3 years of leaving the marital home and still not pay any CGT.

More information on Separation, divorce and capital gains tax can be found here

http://www.hmrc.gov.uk/cgt/intro/gifts-inherit-divorce.htm#3


If your ex spouse has lived in the property through the period of ownership then he would escape CGT as he would get private residence relief to cover any gain.

I hope this is helpful and answers your question.

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