Capital gainsTax

Dawn0103

I split with my husband 2 years ago and we have come to an agreement on the sale of the house. He says that i will have to pay capital gains tax. I have a mortgage of £42,500 and a secured loan of £25,000.
I am hoping to incorporate the loan into a remortgage ( i couldnt do this while my name was on the first mortgage) and use some of the proceeds from the house sale to pay a lump sum off the mortgage. With the rest of the money i need to put in a new bathroom, kitchen and make other home improvements.
My questions are - will i have to pay capital gains tax? is the best thing to do is pay of some of the mortgage? or should i pay some/all the loan off?
Hope someone can help.

silvercar

you don't pay capital gains tax on your main residence.

you are also allowed a certain time period (3 years i think) in which to sell a home that you have lived in as your main residence.

There are also special exemptions relating to marriage and divorce so I think it extremely unlikely you will get hit for CGT.

Bossyboots

Going backwards, I would think the most sensible solution is to pay off some of the loan/mortgage that has the highest interest rate. Check carefully any clauses that mean you will pay penalties for this before making the final decision.

Also, I read you post that you are living in a different house. You are therefore liable to CTG on your share of the matrimonial home as that is no longer your main residence. However you are only liable for the gain on your share not the whole property. This http://www.hmrc.gov.uk/helpsheets/ir281.pdf might help. Unless your house is very large and/or has jumped considerably in value in the last two years, you are very likely going to have sufficient yearly allowances to eat up the gain and leave you with zero CTG. It may also be correct that you are within a short enough timescale to be exempt anyway as has been mentioned. I didn't see that in the leaflet I have linked to but I did only skim read it and it is only a general guide, not a definitive answer to your situation.

Your other option would be to nominate the matrimonial home as your main residence and therefore avoid CTG altogether. However, that would mean your current home would be subject to CTG for the years the matrimonial home does not. I would imagine that if your current home has seen a lower increase in value than your share of the matrimonial home then that would be the most cost effective way of doing it. If you plan to stay in your current home for many years then you could nominate your matrimonial home as your main residence at this time. Bear in mind though that the best laid plans sometimes go wrong.