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Sam
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I have been separated from my wife for a little over a year.

Resolved Question:

I have been separated from my wife for a little over a year. She continues to live in the marital home with our two children. The mortgage is in both our names, that will not change as she is not currently able to transfer the mortgage into her sole name due to financial restrictions. We are in the process of divorce. I anticipate her selling and moving on in another 2-3 years, although this is by no means certain. My question is, in this circumstance, as I am staying on the mortgage, will I be liable to pay capital gains tax on my share of the proceeds of sale. And, if this is the case, what sort of % will I be expected to pay? Thanks.
Submitted: 7 months ago.
Category: Tax
Expert:  Sam replied 7 months ago.

Hi

Thanks for your question - I am Sam and I am one of the UK Tax experts here on Just Answer.

Yes you will be libale to capital gains tax, as

1) the transfer of the property will not take place in the year in which you separated and therefore

2) due to the fact it will be more than 18 months after you overfed out a capital gain will be considered

However for the time you lived there plus the last 18 months of ownership, this will form an exemption under the private residence relief rules

So say you have owned the half share of the propriety for 12 years, during which you lived there for 9 years then this 9 years plus the last 18 months of ownership will be exempt

So the capital gain will be 10.5 year/12 x profit made (value at transfer less purchase price)

And of course half the costs to buy (legal fees and any stamp duty) and half the costs of any capital improvements are deducted and you also have your annual exemption allowance, which currently allows the first £11,100 of the gain to be exempt.

if then any gain still remains, then this is either liable to 18% or 28% - depending in your annual income position and how much of the basic rate band you have unused.

Let me know if I can assist further

Thanks

Sam

Customer: replied 7 months ago.
Thank you. I earn £36,000 p/a. We kept downsizing because of my ex-wife's business debts so I had only been in that particular house for a year before the split. I am accepting 25% of the gross sale price of the house when it is eventually sold as she has primary care of our two children, rough estimate of sale price at say £300,000. So a £75,000 share. It does seem remarkably unfair as I the house is the only one I own and I am gaining no financial benefit from renting it out etc... Is there anyway to minimise the financial impact of this?
Expert:  Sam replied 7 months ago.

HI

I am afraid there is no way to change the capital gain position - it is unfair I cannot disagree with you , but sadly as soon as 18 months lapse from the time this is deemed to be your residence, then capital gains comes into play.

This could have been avoided had an agreement regarding the property be drawn up in the tax year of separation, as then the legislation set would have been treated as arising in the same year - regardless of when the sale/transfer actually took place.

But on the plus side here value of the property when you do transfer/sell less the value at purcahse, will be small as its a recent purcahse (just over 2 years apprx)

So you are NOT liable to the £75,000 you hope to get - but 50% of the net value

So say you bought for £200,000 and when the transfer/sale takes place you get £300,000 then you considered as half of the profit which is only £50,000 (I appreciate you will just get 25% but as shared owner you are treated as 50% owner)

If there was no mortgage in place you could make an election now to reflect that the share is other than 50:50 - but you did indicate there was still a mortgage in place - but if its possible to change this the tax year PRIOR to that of the sale, then your capital gain position would be reflected on your actual legal share.

Let me know if I can assist further, but if you have all that you need, then it would be appreciated if you could rate me for the level of service I have provided (or click accept)

Thanks

Sam

Sam, Accountant
Category: Tax
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Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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