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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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Yes I am in the process of splitting up with my husband

Customer Question

Hello. Yes I am in the process of splitting up with my husband (amicably) and we have two homes. I understand that if we sell the second home it won't be liable for capital gains tax if it is sold within 18 months. If we decide not to sell, and keep one home each, can I live in the second home without paying capital gains tax if it becomes my main home and my husband keeps the other main house (they are both worth the same). Ie If the second home becomes my main home do I have to pay tax on it and if I decided then to sell it one day in say 10 years, would Ihave to pay capital gains then?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.

Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.

You have a problem here owning two homes. On the purchase of the second house you had 18 months in which to advise HMRC which one is to be the sole or main domestic residence for Private Residence Relief (PRR) against Capital Gains Tax (CGT). If you make no election then HMRC will base the CGT position on the facts. Whichever way the tax cat jumps you, as a married or divorcing couple, only get one bite between you at the PRR CGT relief at 100%. One or other of these houses, when transferred, will be liable to CGT. At this stage which one I cannot tell, but it will probably not be the one in which you spent your married life together, unless, of course, you made an election. You will also have to agree who is going to meet the tax which is levied at 18% or 28% of the gain. A combination of the two rates is used and the actual charge depends on the income plus the gain in the year of disposal.

On the split and the payment of the appropriate CGT, you both have an Annual Exempt Amount of 11.1K to offset any gain or posibly Lettings Relief instead if you ever rented it out, then you both start again from scratch so to speak. One will effectively inherit the PRR, the one on which no CGT was assessed, whilst the other starts afresh with a valuation as at the point the disposal value for CGT was agreed. Once seperated and divorced then both of you are independent for CGT purposes and the house in which you each live will be entitled to PRR.

Simple, as the Meerkat in the TV advert would say! No doubt you have been advised that both of you must have independent legal advice even if the divorce is amicable and these matters will have to be carefully considered and taken into consideration by your repective solicitors. You can get a bit of a shock here. I know I did when I received the 'Dear *****' from my first wife's agent [solicitors in Scotland are commonly referred to as 'agents]' after 30 years together and took it to an English solicitor who told me to stop maintenance immediately as the letter said there was to be no maintemance or split of assets!

I do hope I have shed some light on both your positions, but please make sure your legal advisors are fully briefed on the property situation.