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bigduckontax
bigduckontax, Accountant
Category: Tax
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I'm separating from my husband of over 20 years and dividing

Customer Question

Hi, I'm separating from my husband of over 20 years and dividing up propery. I have a flat in my name which I bought and lived in before getting married. My husband and I lived in it for approx 2 years and then bought a house together in both names. I intend to sell the flat and buy him out of our house if I can.
Re the capital gains - would it be better to just transfer the flat to him? Would there still be capital gains to pay? What if he sold it straight away?
Re capital gains if it is payable how much would be payable on a £250,000 gain if the flat has been owned for 22 years and rented out for 19 (I lived in it for 3 years). I am a basic rate tax payer and a low earner.
Thank you
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Anderson Strathern, Solicitors have the following advice: 'During the period between a couple separating and finally getting divorced assets can be transferred from one spouse to the other at base cost. Afterwards, the exemption will no longer apply although spouses may still be treated as “connected persons” for CGT purposes. This means any asset transfer will be treated as having taken place at market value by HMRC.' If he sold straight away there would be no capital gain hence no CGT as he would have been deemed to acquire at current market value. Were CGT payable it would be on a proportion of the gain. Total ownership time is 264. Occupation period 54 months (you are deemed in occupation for the last 18 months even if this is not the case. 264 - 54 = 210. 210 / 264 is say 92% so on 250K gain the chargeable sum would be 179K. From this would be deducted the Annual Exempt Amount of 11.1K plus Lettings Relief up to 40K which I will assume leaving say 128K exposed to tax at 18% or 28% or a combination of the two rates depending on you income including the gain in the tax year of sale: worst case scenario is a charge of just under 36K. [previous paragraph last line delete 'you' insert 'your.' I do hope I have helped shed some light on your problem.
Customer: replied 2 years ago.
Thank you Keith. Would my husband have to wait until our divorce is final before selling to ensure no capital gains is payable? Otherwise in effect it is still a second home. Rather than his only home (although he is not living in the flat and doesn't intend to at any point). I'm guesing that if I sell it and give him the money rather than transer it to him I would have to pay Captial Gains tax?
Expert:  bigduckontax replied 2 years ago.
If you give it to him it is a no tax situation as I explained in my original answer. If you sell it the gain will be taxed as I described. Also the gift would create a Potentially Exempt Transfer (PET) in your estate for Inheritance Tax (IHT) purposes and would, in the event of your death within seven years, be added back, albeit at a taper, for IHT purposes, be the first to suffer IHT and if your estate is insufficient to meet the tax the liability would cascade down to the beneficiary for immediate payment.
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.
You should discuss this problem with the solicitor representing you in this matter.