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My wife and I are selling our house. We separated 12 years

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My wife and I are selling our house. We separated 12 years ago when I left and have been renting ever since. My wife still lives in the house. It seems I may be liable for Capital Gains Tax. How can I get around this? Can I transfer title to solely my wife and will that work tax-wise?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
HMRC will almost certainly tell you that Capital Gains Tax (CGT) is due on your share of the home. Your wife will be entitled to Private Residence Relief which exempts any gain firm the tax. Only half the gain on the home will be taxed and the following periods of absence do not count [Colman & Co Ltd Accountants]:
'Principal private residence relief is based on the number of months in which a property is occupied by its owner as a proportion of the total number of months in which that property is owned. However, in calculating the PPR relief, certain deemed periods of occupation can be taken into account. The deemed periods of occupation only apply provided that there is an actual period of occupation at some point before and after the period of absence. These include:
Any periods of absence (for whatever reason) that do not in total amount to more than three year;
and Any period, no matter how long, where the owner (or the spouse of the owner) was employed abroad;
and Any period or periods of absence totalling more than four years where the owner (or the owner's spouse) was working elsewhere in the UK, or had to live elsewhere for work reasons.
There is a deemed period of occupation where an individual cannot move into a dwelling house immediately, due to building works, provided the work is completed within 12 months of the owner acquiring the property.Any deemed period of absence, only applies where the owner does not have another residence that qualified for PPR during the period of absence.'
So, if any of those exceptions do not apply then CGT would be calculated as follows. Take the total ownership period in Months. Take the period after separation in months and deduct 18 [you are deemed to have been resident in the last 18 months even if this is not the case]. The second figure over the first will give you the proportion of any gain made on the disposal of the property which would be liable to CGT. You have an Annual Exempt Allowance (AEA) of 11K [11.1K next tax year] to offset any gain and the balance would be taxed at 18% or 28% or a combination of the two rates depending on your income including the gain in the year of sale.
Were you to transfer your share to your wife then you would have disposed of your interest and inter spousal disposals are outside the scope of UK CGT Brewen.co.uk say:
'Transfer between spouses is currently exempt from CGT.'
In normal tax planning it is usually the other way so two tranches of AEA are available, but in this case the proposed treatment would eliminate the tax for you.
I do hope that I have been able to shed some light on your position.
Customer: replied 2 years ago.

Many thanks, ***** ***** most interesting.

If I transferrred house into solely my wife's name, would it matter if the sale occurred immediately after this? Or does there need to be any period between transfer and sale?

Expert:  bigduckontax replied 2 years ago.
Well in theory no, but general opinion amongst experts on this site is to give it at least six months.
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.
Expert:  Sam replied 2 years ago.

Hi

I am sorry to intervene - however

My colleague advises 'Transfer between spouses is currently exempt from CGT.'However this applies to spouses who are still living together in marriage for which you advise that you are not, therefore the last occasion that a transfer would have qualified for this exemption at face value would have been in the actual tax year of separation - see advise here from HMRC from the main Helpsheet 281

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/323663/hs281.pdf

This clearly states that the transfer is liable to capital gains unless the asset has been considered as a part of a court order or separation order at the time of separation (or within the tax year of separation) HMRC exact position states

If a transfer occurs between you and your spouse or civil partner after the end of the tax year in which you stop living together, there are rules to decide the date of disposal and the amount of consideration on disposal.These rules depend on your particular circumstances and the information you will need is

:• the date of any decree absolute or dissolution of the civil partnership

• the date of the court order if the asset was transferred by such an order

• the date of any other contract under which the asset was transferred.

Which basically means if no provision was put in place in the tax year of separation (with any of the above legal remits) then a capital gain position on any asset transfer after the tax year of separation is treated as liable to capital gains tax.

So the question is, was this the case in your situation , if NOT then I am afraid the advise you have been offered is not correct. And I felt it was essential you knew this as this mistake would prove to be a costly one to you, which I am sure you would appreciate being aware of

Let me know if you have any follow up questions - if you would prefer me to answer - just state that in your response as I do have 26 HMRC experience and also run my own accountancy business and capital gains is one of my expert fields.

Thanks

Sam

Expert:  bigduckontax replied 2 years ago.
The question makes no mention of formal separation, court orders etc. My answer suggested that CGT would apply proportionately.
The transfer to the wife could affect the outcome favourably. I would advise the questioner to consult a trusted, local professional to negotiate with HMRC on disposal.
Expert:  Sam replied 2 years ago.

Hi

Its the provisions for the assets that has to be formalised in the year of separation - the separation is already formal due to the fact it was one of a permanant nature.

Sadly you canot twist the words around to make this sitation fit - and you had already been advsied that capital gains were due by the local solictor - and here is a solicitor that does know his tax! (not often that happens I can tell you!)

If I thought my colleague was correct in his understanding of capital gains I would not have intervened - as this just leads to unnecessary confusion.

But my advise at this point is to telephone HMRC to get the clarification, its no point you being banded about here - ring HMRC as soon after 8am or as close to 8pm (better chance of getting through quickly) on Telephone: 0300(###) ###-####

This is the main Income tax helpline - so as this relates to Capital gains you will probably have to be given a call back, as not all officers are able to deal with Capital gains queries, but then you formally have the correct advise and that's all I want -

Thanks

Sam

Expert:  bigduckontax replied 2 years ago.
I endorse my colleague's opinion on the sometimes sketchy knowledge of the tax available from some high street solicitors.
It is often a good idea to seek information from HMRC. However, I my advice is never to use telephonic contact. There is always the chance that the official will get hold of the wrong end of the stick, if they can even find the stick at all. It is much better to use written means of communication; then you have a permanent record of what has been stated by both sides.
Expert:  Sam replied 2 years ago.

Hi

HMRC are always happy to put in writing what has been discussed over the telephone - to formalise the call for both them and you!

Thanks

Sam

Customer: replied 2 years ago.

Many thanks, ***** ***** essential information but rather disappointing! Looks like I might have a bit of a problem, previously unexpected in my naivity!!

Expert:  Sam replied 2 years ago.

Hi

I am sorry to be a bearer of basnes, but I am sure you would rather get matters right now - and just suffer the tax - than get it wrong, and leter owe the tax with penalties and intetest.

I would avise however that you will be due tax releiffor the time you lived there and the last 18 months of ownership - and this will apply to half of the gain made (your share) between the purchase and the disposal (transfer) date

Plus any costs for buying (half share) and transfer (your full share) and half the costs of any capital improvements such as new bathroom or a consevatiry etc all go towards reducing the gain.

And after all of that teh first £11,000 is exempt as this is your annual exemption allowance - so it may not be as bad as you fear

If you want some ideas of nubers do feel free to come back to Just Answer and if you would prefer to ask for me "Sam Tax" I would be happy to assist - so you know what to expect in terms of the tax due.

Make sure you alert HMRC of the tarnsfer so they are aware to expect the capital gain computation within a self assessment tax return (if you do not already complete one)

Thanks

Sam

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Satisfied Customers: 13917
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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