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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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In the process of a divorce, we owned a house together and

Customer Question

In the process of a divorce, we owned a house together and we both lived there, I moved out over a year ago and also during that time 6 months later after i moved out I  bought a new house. I have agreed for her to have the house and will sign it over but I will have a legal charge on the house will I be due any capital gains taxes on it?

Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

You say that you will sign over the house to your wife but will retain a legal charge. Is there a set time by which the house has to be sold and the proceeds divided between you? If so, what is it?
Customer: replied 2 years ago.

Hi


the matrimonial home has been owned jointly for approx 7 years. I moved out over a year ago and six month late bought myself a house to live in. So matrimonial house she will have this but there is a legal charge with the following condition for exercise the charge


a) the youngest child attain the age of 18 or complete secondary education whichever shall be later or b) the death of the petitioner or c) the remarriage or cohabitation d) the sale of the property by the petitioner. when the charge is exercise I will only get the agreed 35% of the sale. I know capital taxes like will have to be pay but I'm hoping when the property is sold and not at the start of the agreement . Can you also give me an example of how capital gain taxes would be calculated since it jointly own like how much of the profit would be subject to capital gain tax, would the profit be split half and my half taxed. Thanks in advance


tax

Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I draft my answer.
Expert:  TonyTax replied 2 years ago.

Hi again.

Take a look at paragraphs 3.5 to 3.5.1 here. So long as you don't elect for your new property to be treated as your main home and you transfer the marital property to your wife then you can avoid Capital Gains Tax on that part of the gain not covered by the period that you lived in it plus the last 18 months of ownership which will be exempt in any event.

If you look at paragraph 3.5.1, it refers to Mesher Orders. As you are entering into an agreement with your wife for the property to be sold on the occurrence of one of a number of a certain events, it appears you will have a Mesher Order in place. These can mitigate your potential CGT exposure. If it is done properly and you take the right advice from a divorce lawyer, you may avoid having to pay CGT on the 35% sale proceeds you will receive especially if that is under a court order. Take a look at CG65376 here and at CG65377 here.

I hope this helps but let me know if you have any further questions.

Customer: replied 2 years ago.

How do you elect your home as your main residence


 


i think it a bit late as it now been agreed.


 


i think it looks like a Mesher order so my question will capital gains be due when the charge is exercised and the property is sold or can it be due before?


 


can you confirm that the tax is only on the gain and nothing else?


 


 


so if the profit from the sale in the future is £40000 and I have only 35% how much of the profit will be subject to capital gain will that only be 35% of 40000 =14000. So 14000 of my share will be only subject to capital gain tax at either 18% or 28%

Expert:  TonyTax replied 2 years ago.
You have to make the election within two years of acquiring a second or third or fourth etc property. You don't have to make the election.

There should be no CGT on the initial transfer so long as you haven't made the election referred to above.

If any CGT was due on the ultimate sale, you would only pay it on your share of the gain with the first £11,000 being tax free due to the annual CGT exemption. However, the idea of the Mesher Order is to restrict any taxable gain to the increase in value from the date that one of the stipulated events occurs to the date of the disposal of the property.
Customer: replied 2 years ago.

What is the election? I don't understand.

Expert:  TonyTax replied 2 years ago.
Take a look at page 3 of HS283 here.

If you own more two properties, you can make a voluntary election for one or the other to be treated as your main home for CGT purposes within a two year time period after the acquisition of the second property. If you do that with your new home, it will expose at least part of any "paper gain" you make on the transfer of the first property to your wife. The exposed gain will be a proportion of the gain for the whole period of ownership, ie that part not covered by your period of occupation and the last 18 months of ownership. That may not amount to much as you appear to have only moved out 18 months or so ago.
Customer: replied 2 years ago.

So even those I have not been living in the other house since just over year I can election for that one to be treated as my main residence. Is there a form that I need fill in for this

Expert:  TonyTax replied 2 years ago.
You make the election by writing a letter to the tax office. If you don't make the election within two years of acquiring a second home, then you lose the right to make it and the question of which is your main home will be decided on the facts, ie where you lived after the second acquisition.

Take a look here for some notes on what you need to consider before making an election. You have to remember that if you make the election for your marital home to be treated as your main home, that will potentially expose some of any gain you may make in the future if you sell the property you have purchased since you separated from your wife for as long as the marital home is your elected main home for tax purposes.

Before you make an election, you should discuss the matter with your solicitor as the Mesher Order may help you to avoid CGT alogether. Please refer to the notes here (3.5 to 3.5.1), here and here again and show them to your solicitor.

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