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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I would like to know in straight terms how much capital

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I would like to know in straight terms how much capital gains tax I will need to pay on my second property flat when I sell it. You will wish to note the following:
My (ex)wife and I brought a family home in March 2003, then in Feb 2008 we brought a studio flat in London for 143k (we provided a £20k deposit and mortgaged 123k interest only). It was rented up until Oct 2014 (all profits and taxed with the Inland Revenue). when we separated and divorced where is became and continues to be my residential home. So I've lived at the flat continuous from Oct 2014 to date.
I intend to give up all claims on the family house but sell the studio which is now valued at £190k. I will need to pay legal fees valued around £1000 and estate agent fees at around 3%. I have a higher rate tax payer earning £60k per year before tax.
Please could I have an accurate figure on how much capital gains I would need to pay? If there are allowances I may be entitle to please set the figure without the allowance so I know the most I should ever pay.
Submitted: 8 months ago.
Category: Tax
Expert:  TonyTax replied 8 months ago.

Hi. My name is*****'m looking at your question now and will post my answer or ask for more information here in a short while.

Expert:  TonyTax replied 8 months ago.

Will your wife continue to live in the family home? Is the studio in joint names and will it be sold as such? Did the divorce split any property between you and your wife either by agreement or by court order?

Customer: replied 8 months ago.
my wife will live at the family home with the children. Yes the studio is in joint names currently but as part of the financial split will be in my name only (before it is sold) hence the reason for my question when I come to sell the flat to purchase a larger residence so I can keep my kids on the days that they will be with me. We are at the stage of negotiating the agreement through mediation before it is sealed legally hence why I want to know what additional cost I'm liable for when it is sold (this may affect the way I negotiate or financial matters with the ex-wife). We are trying to avoid getting judges involved. In short the intention is I keep my pension and get the studio flat and the ex-wife gets the house for her and kids. Does that make sense?
Expert:  TonyTax replied 8 months ago.

Thanks.

Leave this with me while I dradt my answer. It is a messy situation so my answer will take some time.

Customer: replied 8 months ago.
Ok thanks - appreciated.
Expert:  TonyTax replied 8 months ago.

You might refer to the notes here, here, here and here for information in divorce, court orders and property. I would advise you to see a family tax lawyer to discuss your options as this is a complex are of tax.

If you were in a situation where you lived in a rented property as opposed to the studio flat which you part own, you could tranfer your share of the family home to your ex-wife on the basis that she will continue to live there. You could then make a joint election under Section 225B TCGA 1992 whereby you would be treated as having continued to live in the family home until the earlier of the date of the transfer and the date the property is no longer your ex-wife's main home. That would effectively exempt from CGT that part of your share of the "paper gain" (arising from you being treated as effectively selling your ex-wife your share of the property at the opee market value) which is not covered by your occupation of the property and the last 18 months of your having an interest in it. Given that you only moved out in October 2014, only about 6 months of your "gain" would be liable to CGT with the first £11,100 being tax free due to the annual CGT exemption.

However, the problem is that such an election would expose a larger part of the gain you will make on the sale of the studio flat to CGT as you cannot have more than one main residence at any one time.

If your wife gives up her share of the studio flat to you, then that will be a disposal for CGT purposes and she will have CGT to pay on all of her share of the "paper gain" as it has never been her main home (£47,500/2 = £23,500 less the £11,100 annual CGt exemption) as she has never lived there.

There is another possibility. Section 248E TCGA 1992 (link 4 above) allows two people with joint ownership of more than one property to exhange their respective interests so that they each end up with one property. The exchange may need to include a with no immediate CGT implications. However, any equalisation payment required to balance the exchange could give rise to CGT and stamp duty.

If no elections are made, you may have cGT to pay on part of the "paper gain" you will be deenmed to have made when giving up your share of the family home but you get the last 18 months of ownership as a tax free period where the proeprty has been your main home. 18 months back from now covers you back to April 2015 and exposes the gain for the period from November 2014 to March 2015 to CGT.

You would be exposed to CGT on all but 18 months worth of the studio gain but you would have acquired half of it from your ex-wife at the market value of her share, say £95,000 which would reduce your gain on sale as your CGT cost would have increased to £166,500 (£71,500 + £95,000). Your wife would be exposed to CGT on her share of the studio gain as described above (£190,000/ 2 - £71,500 - £11,100 x 18% or 28%). In eefect, you would both have £23,500 gains but the amount of yours which would be subject to CGT would be reduced proportionately by the period that you occupied it as your main home. As a 40% taxpayer, you would pay CGT at 28%.

I hope this helps but let me know if you have any further questions.

Customer: replied 8 months ago.
I have to say I'm finding this hard to follow and has made the query more complex than I imagined. There are calculations but no resulting figure. I need to re-mortgage the family house to effectly pay an estimated CGT and I don't know potentially how much that would be. I have only one chance to do this, can you perhaps just give me an estimated figure of the highest I would pay. Reading between the lines this could be £12k?
Expert:  TonyTax replied 8 months ago.

Let me do some calculations.

Customer: replied 8 months ago.
Thanks I'm grateful. Happy to receive a range of that would be helpful.
Expert:  TonyTax replied 8 months ago.

If you sold the studio flat as sole owner today, you would make a gain of £15,460 (£190,000 - £71,500 half of original purchase price - £95,000 half of value when signed over to you - £8,040 fees including VAT at 20%) over 97 months of ownership. You have lived there for 24 months so £3,825 (24/97ths) of the gain would be covered by main residence relief. The balance of the gain is £11,635 (73/97ths). Letting relief of £3,825 (the lesser of £40,000, £3,825 and £11,635) wouild reduce that to £7,810. The first £11,100 of your gains in any one £190,tax year are tax free so there would be no taxable gain. See Example 9 in HS283 for information on letting relief.

Your ex-wife would have CGT to pay on £12,400 (£95,000 - £71,500 - £11,100) at 18% or 28% or a combination of the two rates depending on the level of her income in the tax year she transfers her share of the studio flat to you. The CGT would be somewhere between £2,232 (18%) and £3,472 (28%).

Expert:  TonyTax replied 8 months ago.

I have to go out for a while but will be back in about 30 minutes or so.

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15884
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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