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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3385
Experience:  FCCA FCMA CGMA ACIS
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HelloMy ex wife is selling the family home.I moved out

Customer Question

Hello
My ex wife is selling the family home.
I moved out in august in 2010 and have been living with my girlfriend. It is my girlfriends house and she owns it, so i just contribute to food and bills etc..
The divorce was finally settled in 2014.
We agreed that my ex wife could remain in the house for as long as she wanted for the benefit of the children But had to sell when the youngest turned 18. This is in the court consent order.
However, the youngest is only 12, but now my ex wife has decided its time to sell.
My percentage of the equity sale of the house was agreed to be 22.5%
I want to use this money to buy my own flat and get back on the property ladder.
I intend to rent out this flat in the short time, until me and my girlfriend decide what our long term plans are together.
Will i have to pay tax on the money i get, when the family house gets sold or can i use all of it, as i need every penny.
will the answer provide be allowed to used if any leagal points are raised
Thank you
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.

Hello, I'm Keith and happy to help you with your question. This is not simple, but I will try to summarise your capital Gains tax (CGT) for you. If you have the time, a wet towel for your head and the backs of lots of envelopes you can find the solution from HMRC Help Sheet 281; here is the link:

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

You will be liable for CGT on 22.5% of the gain made from a market value as at August 2010 and the net selling price obtained by your ex. You have an Annual Exempt Amount (AEA) of 11.1K to offset this gain. Any CGT then due will be taxed at 18% or 28% or a combination of the two rates depending on your income including the gain in the tax year of sale. This capital gain is declared in your annual self assessment tax return. If the sale was in the 15/16 tax year then you would have until 31 January 2017 to settle any CGT due.

Your girl friend would also be liable for CGT on her flat for the proportion of time she rented it (less 18) out against her total ownership time; all calculations being done in months. The last 18 months don't count as she will be deemed to be in occupation even if this is not the case and Private Residence Relief (PRR) is extended. She will get PRR for all the time it was her sole or main domestic residence and PRR relieves CGT at 100%. Furthermore, she will be entitled to Lettings Relief up to 40K instead of an AEA. I suggest that, in fact, she will probably have no CGT to pay at all. I do hope

I have helped set your mind at rest on this matter and cleared the air for you. By the by, you would be entitled to the last 18 month rule too so don't forget to take that into account in your calculations,

Customer: replied 1 year ago.

Hello

I still don't understand why I have to pay Capital gains tax, when I do not own any other property. My ex wife lives in the family home and it is a joint mortgage together. Now she is selling and I want to use my share to buy a flat for myself only.

I an not sure what my girlfriend has to do with any of this. She owns her own house (not flat) and I live there because I do not have a property to live in. I pay contribution to her monthly for food etc.

Expert:  bigduckontax replied 1 year ago.
If you look at Help Sheet 281 you will see why. Here is the general rule:
'If you are not living together or the asset involved is trading stock, any asset transferred between you is treated as transferred at its market value at the time of the transfer. So, in these circumstances, the person transferring the asset may make a chargeable gain or an allowable loss.'
You gain is ;limited to that made between an August 2010 value and the net selling price, but at 22.5% of the gain less AEA as I explained to you. CGT is a thoroughly nasty tax which tends to rear its ugly head unexpectedly as it has done here. You could try the argument that it is your sol or main domestic residence, not the word 'or' not 'and' but I warn you you will be in for a battle with HMRC who always tend to interpret 'or' as 'and.'
You told me in your question that your girl friend intends to rent out her flay; actually your wording was 'I want to rent etc.' That exposes her to CGT herself as the property is rented out although with Lettings Relief I suspect that there will actually be nothing due when she eventually sells. You also mention house in your follow up question. Some clarification may change the my response.
Customer: replied 1 year ago.
Thanks for your reply again , just to clarify
My girlfriend owns her house outright and has nothing to do with me. I just pay her monthly money to live there as I have no home of my own. When I receive my 22.5% I will buy my own flat and live there or buy my own flat and rent it out and carry on living with my girlfriend.
It just seems unfair that I have to pay tax on the only property I jointly own with my ex wife.
I let her stay in the house to benefit her and the children and now I will be penalised and have to pay tax on the difference between the house prices of 2010 and now . I should of just told her to sell the house when we split up.
Expert:  bigduckontax replied 1 year ago.
So sorry to have misunderstood your question. Still all knowledge is useful to tuck away for future reference.
I regret I cannot comment on the advice you received during your divorce proceedings. You should, in my opinion, have been warned of the CGT consequences of the situation. Regrettably, as you will see from other questions on this site, many solicitors are ignorant of the consequences of this rather nasty tax.
I advised on one case some months ago where a father had lent his son half the price of the latter's house, but put himself on the deeds as Joint Owner. When he gave the son his share it cost him 39K CGT; ouch!
Customer: replied 1 year ago.
Thank you for your quick reply
One last thing please. The house was valued in August 2010 at £310k
Now it's value is £450k. So an increase of £140k
Do I just pay CGT on 22.% of £140k
Which would be £31,500
Therefore minus my allowance of £11.1k
I would pay 28 % tax on £20400
Which would be approx £5700
Thank you
Expert:  bigduckontax replied 1 year ago.
CGT is:
450K - 310K = 140K @ 22.5% = 31.5K * 11.1K = 20.4K taxable gain.
Worst case scenario with tax at 28% = 5.71K payable.
Simple, as the Mercaat in the TV advert would say. You have it to a T.
Please be so kind as to rate me before you leave the Just Answer site.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3385
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.

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