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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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, Me & my wife are in the process of getting divorced.

Customer Question

Me & my wife are in the process of getting divorced. We split our assets years ago and the child care arrangements. We have no debt and the two houses we own are mortgage-free. However, we have a small issue.
The house my wife is in is valued at £350,000.
The house I live in is valued,and has now sold, for £250,000.
We have a verbal agreement that when she sells her house, which could be any time in the next 10 years, she will give me 50% of the profit above £250,000. We have two boys (11 & 14) and so far every thing has been very amicable. I want the boys to be able to continue living in their mothers home and she is not in a position to take out a mortgage.
I have a few questions:
1. Am I being incredibly naive relying on a verbal agreement?
2. If, for example, she sells up in 5 years time and the house is worth £400k (my half above £250k being £75k) will I be taxed on that money? We will have been divorced for 4+ years by then.
3. A solicitor has told me I can have a Charge put against the property, ensuring that she pays up when the house is sold. If I go down that road would I have to pay tax on the, using the example above, £75k?
Many thanks.
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.

I won't go into the split of assets made years ago as I'm assuming you looked at the tax considerations at the time.

1 Unless there is something in writing as part of the divorce settlement, it would be easy for your wife to renege on the verbal agreement and there would be nothing you could do about it. I'd have a written agreement in place.

2 If you are to be given a fixed sum on a future disposal of the property that you do not have an interest in there will be no CGT implications for you but your wife will not get a deduction for the sum from her gain. However, assuming she continues to live in the property until it is sold, there would be no CGT for her to pay on her gain in any event.

3 You could have a charge put against the property as part of the divorce settlement but that would not make any payment to you taxable as you don't own a share of the property. Take a look at the last paragraph under the heading "Mesher Orders" here. The notes here may also be useful.

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