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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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Good evening. I would be grateful advice on the

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Good evening. I would be grateful for your advice on the following; under the terms of a divorce settlement I am obliged to provide a home for my ex-wife to occupy. In 2002 my ex-wife chose to live in Northern Ireland where a new apartment was selected by her. Under the terms of a Deed of Trust set up at the time we are named on the title deeds as joint owners. I am now 85 and have decided to pass my share of the property to my ex-wife to make certain she has a place of her own should I pre-decease her, which is most likely as she is 77. The solicitors acting for me have advised that my ownership of the property will be treated as a gift with reservation and will form part of my estate unless I survive beyond seven years from the date of disposal. I am also informed that a CGT charge will arise, calculated on the rise in the value of the property since purchase in 2002. This seems a little inequitable since it gives HMRC two bites of the cherry. I am anxious to know whether the advice I have received is correct. Can you assist me please ? Thank you Ken XXX

Hi Ken
Thanks for your question - I am Sam and I am one of the UK tax experts here on Just Answer.
The gift actually will be a potentially exempt gift, not a gift with reservation. And its the potentially exempt gift that sees it being disregarded for Inheritance tax should you survive more than 7 years. And part of it disregarded between 3 and 7 years)
The reductions for the periods of time are
Gift and Death Charge Applied Effective IHT Charge
Year 1 100% 40%
Year 2 100% 40%
Year 3 100% 40%
Year 4 80% 32%
Year 5 60% 24%
Year 6 40% 16%
Year 7 20% 8%
A gift with reservation never drops off for Inheritance tax consideration as it would indicate that you still make use of the property.
But then yes there is Capital Gains tax to consider - on your half share o any profit due to the fact this has never been your main residence.
I agree the unfairness but if you sold your half share then you would only have capital gains to consider and the advise to hold in it joint names is where you were steered wrong back in 2002 - and since then this has allowed a profit to be made on the difference between the purchase price, and the value now you plan to git your share.
Depending on your Inheritance tax position it might be prudent just to leave your share of the property to your ex wife - so there is then NO capital gains tax and only Inheritance tax if your total estate is in excess of £325,000
Let me know if you require any further assistance.
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