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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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My son aged 46 divorced in 2010 and left the marital home.In

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My son aged 46 divorced in 2010 and left the marital home.In the Consent Order dated Nov 2010 he agreed( for the well being of the 3 young children) to a 60/40( against him )split of the net profit of the marital home which was to be sold "forthwith" with 5% due to him on that sale and the remaining 35% translated into a second charge on the new house to be purchased by his exwife in her sole name .This 35% balance is due to be paid upon their youngest child attaining the age of 18 (in Feb 2020) and will be approx. £100000 presumably achieved by his ex wife selling her new house.The sale of the marital home has only just been completed after 4 years and his 5%( £14200) has been paid to him.Being without sufficient capital to purchase since 2010 he has been renting.
Is there likely to be a CGT liability for him on these funds ?Many thanks.

Can you tell me if your son occupied the marital home until the divorce please. If not, when did he move out?
Customer: replied 3 years ago.

Thanks.I believe that he moved out of the marital home in mid 2090 with The Consent Order being attested in Nov of 2010

Do you mean 2009?
Customer: replied 3 years ago.

Yes so sorry! Fingers faster than brain!!


Leave this with me while I draft my answer. I have a fair amount to get through so please bear with me.

Hi again.

Tax and divorce can be complicated because its a the meeting of tax law and family or marital law.

When a marriage breakdown occurs and the marital home is sold, there can be Capital Gains Tax implications for the spouse who moved out some time before the disposal. For post 5 April 2014 disposals, the last 18 months of ownership is given as a tax free period in addition to the period of occupation in any event where the property concerned has been the main residence at some time. For disposals pre-6 April 2014, the last 36 months of ownership of a property which has been the main residence of the owner is given as a tax free period.

In your son's case, it appears that what is known as a Mesher Order was put in place in November 2010. See here and here. This means that the property went into trust at that time and as your son effectively disposed of his interest to the trust (at least temporarily) within 36 months of moving out, his "gain" to that point will be CGT free.

Normally, a Mesher order will end on the occasion of a certain event as stipulated in the agreement and your son would be treated as re-acquiring his interest in the property with the market value at that time (or his share of it) being his cost for CGT purposes. If the property is sold soon after that event for market value, there is unlikely to be a taxable capital gain once the costs of disposal and the annual CGT exemption is taken into account.

See pages 41 and 42 here for more information on the CGT and potential Inheritance Tax implications of Mesher Orders. It may be that the final paragraph on page 43 is more applicable to your son's situation than a Mesher Order and you might consider having a tax lawyer take a look at the paperwork in detail for a more detailed opinion than I am able to give here. In that case, CGT would probably not apply in any event.

The fact that payment of 35% of the sale proceeds is being deferred until the youngest child reaches 20 complicates matters in that it is unusual for a Mesher Order to be carried into a second property. Even though payment of the 35% to your son is deferred, the tax office may take the view that all he has done is reinvest in a new property (albeit under a consent order) and that the whole gain on the 40% share he is entitled to be declared in the tax year when the first property was sold. As I stated earlier, if a Mesher Order was in place, then there should not be any CGT as he will have reacquired his interest so close to the disposal.

The HMRC view may be influenced by what the 35% owing to your son represents, ie is it 35% of the profit of the first house or 35% of the profit on the second house disposal? If it is 35% of the first house profit, then the whole gain such as it is will probably need to be disclosed for the current tax year.

If the 35% will be based on the profit of the second house, then the Mesher Order or Consent Order may still be in place (albeit on a second property) to protect any further gain from CGT if one arises on the second sale but I would be surprised if HMRC doesn't seek to tax your son on any profit over and above the 35% he was entitled to from the disposal of the first house.

As I advised earlier, all the paperwork needs to be looked closely by a tax lawyer. On too many occasions, these things are drawn up with no thought for the tax implications.

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

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