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bigduckontax
bigduckontax, Accountant
Category: Tax
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My wife and I separated in 2012; we have a child aged 11. We

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My wife and I separated in 2012; we have a child aged 11. We jointly own a home and are now going through the process of getting divorced. My wife is taking 60% of the equity, and I am taking 40% (worth roughly £190k). We are not selling the matrimonial home; rather, she is giving me around 45% of my equity (so around £90k) now, and the rest I am retaining by way of a 2nd charge on the house (we have a mortgage, which she is taking over). I don't own another property - I have been renting since we separated, waiting to find out where my daughter will be going to secondary school before buying my own home.
Would either of us be liable for CGT or SDLT, either when she gives me the £90k now, or when I receive the final payment (through crystallisation of the charge) in 10+ years? I expect to be paying CGT on any increases to my retained share (currently £100k but will increase in line with the value of the house). I am concerned about having to pay CGT or SDLT on any of my £190k share of the equity - after all, it was my PPR and I only moved out into a rented property. thanks in advance for your help!
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.

In basic terms you avoid al these complications if these activities are conducted within the tax year of separation as they are classed as inter spousal and thus outside the scope of UK taxation. The key document is HMRC Helpsheet 281 which I recommend that you read thoroughly. You can find it here:

https://www.gov.uk/government/publications/husband-and-wife-civil-partners-divorce-dissolution-and-separation-hs281-self-assessment-helpsheet/hs281-husband-and-wife-civil-partners-divorce-dissolution-and-separation-2015

You may want to come back to me after you have perused the Helpsheet.

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.

In basic terms you avoid al these complications if these activities are conducted within the tax year of separation as they are classed as inter spousal and thus outside the scope of UK taxation. The key document is HMRC Helpsheet 281 which I recommend that you read thoroughly. You can find it here:

https://www.gov.uk/government/publications/husband-and-wife-civil-partners-divorce-dissolution-and-separation-hs281-self-assessment-helpsheet/hs281-husband-and-wife-civil-partners-divorce-dissolution-and-separation-2015

You may want to come back to me after you have perused the Helpsheet as you are clearly outwith the time limit.

Your liability to CGT will be severly reduced by Private Residence Relief (PRR) proportionately imposed over the total ownership time against unoccupied time, the latter is reduced by the last 18 months s you are deemed to be in occupation even if this is not the case. You have an Annual Exampt Amount(AEA) of 11.1K to offset this gain.

You are converting from a Joint Tenancy to a Tenancy in Common.

Customer: replied 1 year ago.
Thanks, ***** *****'m not really sure I follow what you're saying. I had read the factsheet before but still none the wiser! As we separated in 2012, I don't think there's an in-year tax allowance? It's been more than 18 months since we separated.What I'm seeking is a non-technical answer - basically, do I still benefit from PPR relief on my both the advance I'm receiving now, and the final payment due when my daughter ceases full time education etc, or is there going to be a CGT liability arising? thanks, ***** ***** to ask for a more lay explanation.
Expert:  bigduckontax replied 1 year ago.

You benefit from PRR for the period you lived in the dwelling plus the last 18 months of ownership. CGT will be calculated on the proportion of your non occupation time less 18 month to total ownership time. I am rather surprised that your solicitor did not appraise you of the sitation when divorce was contemplated as you lost the in year allowance.

Forget about both the advance and the final payment. The CGT liability will crystalise at the total of the current payment and the future settlement on the day of transfer from Joint Tenancy to Tenancy in Common less, of course, an element for acquisition cost plus purchase costs plus any improvements as it is only the gain that is taxed.

Please be so kind as to rate me before you leave the Just Answer site. Please don't hesitate to follow up if required.

Customer: replied 1 year ago.
Thank you, It's starting to become clearer. So, I moved in in July 2003, will formally settle in September 2016 - that's 158 months. I moved out after 112 months (but add the 18 in) gives me 130 out of 158 months, or 82.2% occupancy. The house is now worth £625k, but has equity of £485k, which was 50% mine but I've surrendered 10% to my ex. Please could you give me an indication of how my CGT liability will be calculated? I will then be happy to give you a high rating. Many thanks.
Expert:  bigduckontax replied 1 year ago.

Only 17.8%, say 18% of the gain is exposed to tax. The gain is 625K - 485K = 140K @ 18% is say 25K. However only 10% of this ia applicable, the difference in our percetages so the 'gain' falls to 2.5K and as you have an AEA of 11.1K there will be no CGT to pay. 10% of 625K is 62.5K and SDLT does not kick in until 125K. Simple as the merkat in the TV advert would say!

Customer: replied 1 year ago.
Wow that would be a great outcome! Although I'm not sure the "gain" you have shown is the actual gain (the difference between the £625k value and the £485k equity is the mortgage, of £140k). Was it clear that the £485k was equity (not the mortgage amount)? We originally bought the house for £250k; it was probably worth £525k in 2012/13.
Expert:  bigduckontax replied 1 year ago.

Ah, I assumed it to be the original purchase price. So 625K - 250K = 375K @ 18% = 67.5K. 10% of this is 6.75K still well within the AEA.

Customer: replied 1 year ago.
The 10% is a reference to my reduction in equity (having given it to my ex), so applies to her SDLT liability. Still helpful.I don't see how the 10% refers to the CGT calc, though? Is my CGT liability then based on my share (40%) of the £375k? So 18% of £150k? Or, because I used to own 50% when I lived there, but now only have 40%, do I have a tax "credit"?
Expert:  bigduckontax replied 1 year ago.

No. you will be deemed to have disposed of 10% of your equity and thus made a capital gain.

Customer: replied 1 year ago.
Even though I haven't gained from giving away 10%? I haven't sold it to her.
Customer: replied 1 year ago.
I'm afraid I'm still no closer to having any certainty over the my CGT liability.
Expert:  bigduckontax replied 1 year ago.

You do not have to sell to make a disposal for CGT purposes. In this case you have given away 10% of your equity.

I recall one man who bought a house for his son tto live in at uni. He kept it in his name, never occuopied it, but when he gave it to his son it cost him 35K in CGT.

Customer: replied 1 year ago.
Ok great. So, just to ensure I've understood correctly, you're saying my only CGT liability will be (broadly) 18% unoccupancy, applied to the 10% I've disposed off - with the amount disposed of being current value of the house (£625k) minus the purchase price (£250k) = £375k x 10% x 18%, or £6.75k, which is under the annual allowance. Is that correct? If so, I can live with that! And thanks for your patience in helping me to understand.
Expert:  bigduckontax replied 1 year ago.

Correct; delighted to have been of assistance.

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Expert:  bigduckontax replied 1 year ago.

Thank you for your support.