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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15915
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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My husband and I have been separated years. He now

Customer Question

My husband and I have been separated for eight years. He now lives in Norway (his home country) where he rents accommodation. We bought the London flat as our family home twenty two years ago. I am still living there. The mortgage is still in both our names since I earn very little and if we had split the property I would never have got another mortgage and I would have lost my home. I have been paying the mortgage on my own however. We bought it for £56,000 and I have recently had it valued at 575,000.
He left eight years ago and moved to his country Norway, where he now rents. I am thinking of moving. But wonder if he will be liable for capital gains tax. And if he is whether we can avoid this by him giving me his half? Would I then have to stay here for a period of time (months/years) to establish that it was my residential property alone?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. Let me take a look at this and I'll get back to you in a bit. I have an answer but it will take a little time.
Expert:  TonyTax replied 1 year ago.
As the property was not transferred to you within the tax year that you separated, you don't have the option to use the exemption from Capital Gains Tax for intra-spouse transfers of assets. Such a transfer now would normally give rise to a CGT liability for your husband. Non-UK residents have been subject to CGT on the disposal of UK residential property since 6 April 2015. You can read about that here and here. In your case, if your husband gave you his share, the best option would be to use the 5 April 2015 value as the cost of his share of the property so only any increase in the value of his share since then would be subject to CGT. This would also have the effect of substantially increasing your cost for CGT purposes for the share of the property being given to you. That would be useful if you moved out in future and didn't sell the property. If you sold it now, your share of any gain will be exempt from CGT as the property will have been your main home for the entire period of ownership. An alternative would be to have your husband transfer his share of the property to you and for the two of you to sign a joint election under Section 225B Taxation of Chargeable Gains Act 1922 so that the paper gain incurred by your husband is exempted from CGT. As he doesn't own another property which could be considered to be his main residence, there would be no detrimental effect on such a property tax wise. Take a look at the notes here for more information on a Section 225 election. How your husband's paper gain would be treated in Norway is something he would need to take local advice on. As far as you are concerned, if you sold the property after having become the sole owner, your gain will be exempt from CGT due to the main residence exemption rules as you will have lived in for the entirety of your having owned a share or all of it. The notes here and here give some useful information on separation and divorce tax consequences. I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
I don't understand what you mean by using April 2015 as date for valuing his share of the gains? Nor what it would mean an increase in spots share of CGT for me. Perhaps I'm being thick!
Expert:  TonyTax replied 1 year ago.
The property cost £56,000. Half of that is £28,000. As your husband is non-UK resident, he can use the April 2015 value of his 50% share as his "cost" for CGT purposes. Obviously, the property was worth more than £56,000 in April 2015 so if its simple arithmetic that by using 50% of the April 2015 value any CGT your husband had to pay would be far less than if he used £28,000 as his cost. If your husband is deemed to have "sold" you his share of the property for its value in April 2015 or its value now, your cost for CGT purposes will be much increased, ie it will be £56,000 / 2 plus 50% of the value in April 2015 or 50% of the value now.
Customer: replied 1 year ago.
But how can I use the date of April 2015 when he has not lived here since 2009? Obviously there is a big difference in value gained in those 6 years. Sorry to be stupid. ( btw I am impressed by your service.)
Expert:  TonyTax replied 1 year ago.
They are the rules. If your husband is deemed to have "sold" you an asset for its open market value, that open market value is your cost for CGT purposes. If my mother gave me her house, my cost for CGT purposes would not be £0. It would be whatever the property is worth.
Customer: replied 1 year ago.
Are you saying he would just gave to pay CGT on the gain from April 2015 up until now? Sounds bonkers...but then the tax system all sounds mad to me! Will that date remain static in the foreseeable future? And will reductions foe updating the lease be reduced in that gain?
Expert:  TonyTax replied 1 year ago.
The London property market is bonkers to me! Yes. The reason is that until 6 April 2015, non-UK residents paid no CGT in the UK when they sold UK based assets such as property. Now they may pay CGT on gains made on UK residential property since 5 April 2015. I cannot predict the future so I don't know what future tax law will be. What do mean by "And will reductions foe updating the lease be reduced in that gain?"
TonyTax and other Tax Specialists are ready to help you
Customer: replied 1 year ago.
Yes the property market is indeed bonkers in London! And life is becoming increasingly bonkers too. I am growing to hate the city I grew up in.
Any way...I meant the next sentence in your first round of advice...."substantially increasing your (my) cost for CGT..."
Is that good?
Expert:  TonyTax replied 1 year ago.
Your cost for CGT purposes would be increased because the cost for CGT purposes of the 50% share given to you by your husband would be the open market value of that share, either the 5 April 2015 value or the value when it is given to you. That would be of use to you if there was a period when you were not living in the property. Look in HS283 for information on CGT and the main residence.
Customer: replied 1 year ago.
I don't get that. But since I intend to sell rather than rent out the flat I assume it makes no difference. Once he has "given" me the property and he (we) have paid the CGT calculated on the rise in value of half the property after April 2015, I can then sell it as my own residence and therefore free of CGT. Is that right?
Customer: replied 1 year ago.
It seems like I'm lucky he went off back to the land of the midnight sun, rather than just down the road!
Expert:  TonyTax replied 1 year ago.
That's correct.
Customer: replied 1 year ago.
One final question (promise). Would it make a difference if he "gave" it to me now - which would mean I'd have to pay off the mortgage in one go - or could he give it to me at the point of sale?
Expert:  TonyTax replied 1 year ago.
If you are intending to keep all the profit, you need to make sure that the property is in your name before it is sold. A solicitor would be able to tell you if it can be done at the last minute.
Customer: replied 1 year ago.
You've been very helpful. I'll now write a review and add a little bonus. I may have a ridiculously valuable property...but I've got a laughably small income! But yourpve been great. Is there a way I can keep this advice?
Expert:  TonyTax replied 1 year ago.
Thanks. Copy the page address for this question and send it to yourself in an email.

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