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- I really need some tax advice on the sale of the matrimonial

Resolved Question:

- I really need some tax advice on the sale of the matrimonial home after divorce. I moved out of the house in May 2012 into rented accommodation. My ex-wife and children continue to live in the matrimonial home and I've been paying the mortgage and bills on the property. Whilst this has been the best thing children, it's not sustainable and I need to buy a property of my own and try and help my ex-wife get a more manageable property. I also understand that I'm liable to pay CGT if the house is sold after three years of moving out. The decree absolute was issued on 28th Dec 2014 but we still need to agree the financial split. The house was bought in 2008 for £850,000 and is now valued at approx £1.5m. The mortgage is £580,000.
My questions are a) whether I will have to pay CGT if the house is sold after May 2015, b) what the likely amount of CGT I will be liable to pay? and c) is there any way I can help her get a new house with my salary contributing towards the mortgage but not being on the deeds, ie avoiding CGT in the future.
Many thanks help in advance.
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
.

Can you tell me in which month in 2008 the property was bought please. Is it in joint names?
Customer: replied 2 years ago.

Thanks quick response. I've just checked and it was actually bought in July 2009. It's in joint names.

Expert:  TonyTax replied 2 years ago.
Thanks.

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

If the property was sold in April 2015 for £1.5 million, you would make a gain of £650,000, £325,000 of yourself and your wife. Your wife's share of the gain would be exempt.

By April 2015, you will have owned the property months and you will have lived in it . The gain period that you lived in the property will be exempt from CGT as will the gain last 18 months of ownership. That accounts for £246,071 (£325,000 / 70 x 53). The balance of the gain of £78,929 will be taxable (£325,000 / 70 x 17).

Assuming an exchange of contracts after 5 April 2015, the first £11,100 of the taxable gain will be tax free leaving a net taxable gain of £67,829.

There are two rates of CGT, 18% and 28%. The rate or combination of rates that you will pay will be dependent on the level of your income in the tax year of disposal. The highest that the CGT can be is £18,992.12 (£67,829 x 28%).

I'm afraid that I cannot advise you on mortgages as I'm not allowed to do so and would suggest you consult an independent financial adviser who may be able to make some suggestions.

I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.

Many thanks response. To clarify - if the property is sold before 5th April is CGT payable?

Expert:  TonyTax replied 2 years ago.
Yes, if contracts are exchanged by 5 April 2015, CGT will be payable on 31 January 2016.
Customer: replied 2 years ago.

But I thought that there was a three year CGT exempt period currently? I understood that it's changing in April to 18 months...

Expert:  TonyTax replied 2 years ago.
Take a look here of the last 18 month relief start date.
Customer: replied 2 years ago.

Sorry, but I'm still confused. I'm only renting - and don't have another property. I've been on the HMRC website and it seems like there's an exemption - see below. What do you make of this? Full HMRC doc text below.

"If the period between moving out of the matrimonial or civil partnership home and the transfer is longer than the final period exemption, see CG64985+, the gain will not qualify relief. So a charge to tax could arise at a time when funds are least likely to be available. The charge can be mitigated in appropriate cases by TCGA92/S225B on or after 6 April 2009. made prior to 6 April 2009, ESC/D6 applies.

TCGA92/S225B operates in the same way as Section 222(8) and ESC/D49 by deeming a dwelling house to be a residence specified period. However the individual must make a claim 225B to apply.

TCGA92/S225B allows the former matrimonial or civil partnership home to be treated as the only or main residence of the transferring spouse or civil partner from the date his or her occupation ceased until the earlier of



  • the date of transfer


and



  • the date on which the property ceases to be the only or main residence of the spouse or civil partner to whom the property is transferred.


CG65356 - Private residence relief: separation, divorce or dissolution of civil partnership: spouse or civil partner transferring interest

After a spouse or civil partner has moved out of the matrimonial or civil partnership home on separation, divorce or dissolution of the civil partnership, the individual may transfer his or her interest in that residence to the other spouse or civil partner as part of the settlement on divorce or dissolution. The transfer may be ordered by the Court or may be voluntary. The transfer is a disposal Gains Tax and a gain may accrue.

If the period between moving out of the matrimonial or civil partnership home and the transfer is longer than the final period exemption, see CG64985+, the gain will not qualify relief. So a charge to tax could arise at a time when funds are least likely to be available. The charge can be mitigated in appropriate cases by TCGA92/S225B on or after 6 April 2009. made prior to 6 April 2009, ESC/D6 applies.

TCGA92/S225B operates in the same way as Section 222(8) and ESC/D49 by deeming a dwelling house to be a residence specified period. However the individual must make a claim 225B to apply.

TCGA92/S225B allows the former matrimonial or civil partnership home to be treated as the only or main residence of the transferring spouse or civil partner from the date his or her occupation ceased until the earlier of



  • the date of transfer


and



  • the date on which the property ceases to be the only or main residence of the spouse or civil partner to whom the property is transferred.


If the transferring spouse or civil partner has acquired another residence, it may be disadvantageous claim to be made /S225B to apply. You can only allow relief on one residence same period and if relief is given on the former matrimonial or civil partnership home it will be lost on the other residence. There is an example at CG65375.

Expert:  TonyTax replied 2 years ago.
It only applies if you sell the property to the spouse who is living there, not to a third party I'm afraid.
Expert:  TonyTax replied 2 years ago.
again.

You may be interested in the notes here which deal with the marital home and tax on marriage breakdown. As I said in my previous post, the S225 relief can only apply where the absent spouse transfers or sells their interest to the occupying spouse as opposed to a third party.
Customer: replied 2 years ago.

Thanks help. I'm utterly shocked. My solicitor hasn't mentioned this and it seems an obvious thing to flag up. Basically anyone who has moved out of the family home needs to sell within 18 months in order to avoid CGT? Most divorces take much longer than that - particularly with the two years seperation rule. How can this be right?

Expert:  TonyTax replied 2 years ago.
I'm afraid that many people fall foul of this rule. As you know, it used to be the last 36 months but it was reduced to 18 months of contract after 5 April 2014. This is why there are options to transfer or sell the marital property to a spouse. You might also ask your solicitor about Mesher Orders which were mentioned in the link I gave you in my previous post.
TonyTax and other Tax Specialists are ready to help you
Expert:  TonyTax replied 2 years ago.
again.
It's been a few days since I answered your question. Is there anything you need further clarification on? If not, would you kindly rate my answer so that I get credited work on it.