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bigduckontax, Accountant
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CGT on house to be disposed of as financial order in

Customer Question

CGT on house to be disposed of as financial order in divorce.
Hi looking for help urgently.
In the financial divorce order - which has taken nearly 2 years to get. I have been awarded the remaining proceeds of sale for a 2nd house that my wife owned on her own all pre the marriage and during which she has rented out.
the order states that the house has to be sold and sol's fees estate agents costs and any CGT has to be covered first.
My wife is saying one amount but I understand that she should be claiming back any costs for the buy and selling and also any money spent for the upkeep of the property. Although she says she no longer has any of the receipts etc.
Brought Jan 2000 for £55000
Offer received for house £205000 May 2016
She has only worked the last 4 years earning 10k a year.
Would you be able to advise?
Many Thanks Simon
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.

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

Any gain made from this sale will be liable to CGT. However, before I can proceed to advise you I need to know if your wife ever occupied the house either before or after the rental period.

Customer: replied 1 year ago.
Thanks Keith,No its was brought as a rental and has always been unfortunately.
Expert:  bigduckontax replied 1 year ago.

Right, Simon, the reason I asked was that had she so occupied then there would have been an entitlement to Lettings Relief (LR), available up to 40K.

The gain is 205K - 55K = 150K; deduct her non cumulative Annual Exempt Amount (AEA), 11.1K leaves 138.9K exposed to the tax. This is levied at 10% or 20% or a combination of the two rates depending on her income including the gain in the tax year of sale. So with an income of 10K then 32K - 10K = 22K @ 10% = 2.2K and the balance 116.9K @ 20% = 23.38, total tax due 22.58K.

Presumably you will have to borrow in the very short term to clear this liability, but your solicitor will have met this contingency often in his practice and can point you in the right direction loan wise.

The gain is actually calculated from the acquisition and the net selling costs so my figures based on bare data may well reduce. The acquisition cost is the cost price plus buying costs including Stamp Duty Land Tax plus any improvements eg installation of double glazing, central heating extensions etc, but not routine maintenance which can offset rental income. As your wife earns below the personal allowance the latter is not of much use. The net selling price is what you receive less costs of sale including advertising.

I do hope that you have found my reply of assistance.

Please be so kind as to rate me before you leave the Just Answer site.

Customer: replied 1 year ago.
Hi, you seems to be using different rates than what is on the gov website calculator?Subtracting annual exempt amount from 'Residential' assets first.
You have 'residential asset' gains of £130,900.00 after taking the annual exempt amount available.
You have 'residential asset' gains of £130,900.00
Total gains after using available allowances/losses £130,900.00 (Residential: £130,900.00, Other: £0.00)
Applying tax bands to 'Residential' assets first.
Residential assets taxed at basic rate (£21,[email protected] 18%) = £3,852.00.
Residential assets taxed at higher rate (£109,[email protected] 28%) = £30,660.00.
Residential assets tax = £34,512.00
Expert:  bigduckontax replied 1 year ago.

You are looking at the position up to 15/16. In the 16/17 tax year the CGT rates dropped. However for residential property the rates remain at 18% and 28%, deep apologies; I had a bad night's sleep.

So 138.9 gain, 22K @ 18% = 3.96K and 116.9K @ 28% = 32.32K, total 36.692K tax due, a tad under 37K.