Capital Gains if separated

jsbach

I separated from my wife in January 2015 and have a mortgage on my current house. Wife lives in former family home, which is fully paid for. I am aware that, should she sell the house to move somewhere smaller and give me my half of the proceeds then I am liable for CGT on that money; this may occur in 2017. Until the sale happens, do I need to do anything? (Severing the tenancy I believe is just tied up with remaking my Will and leaving my share to someone else).

Is there as way of reducing the CGT I will ultimately have to pay? My solicitor has mentioned things which may occur, but not what I ought to be doing. Local accountants do not seem to be able to advise me. What kind of firm should I be looking for, if any, other than asking the kind people on here?

Thanks in advance.

saintalan

Hi jsbach

I'm not an expert on your situation but probably if you let us know for how long the house was your primary residence someone will advise.

Chances are if sold within 18 months of you leaving you will owe nothing.

Alan

jsbach

We lived in the family home from 1989.

saintalan

Doubt you have much to worry about, I dont know if there are any marital/separation/divorce laws/regs that apply.

Just to be on the safe side in case it drags on past 18 months to get a couple of valuations.

In pure CGT terms you would get a lot of PPR (Private Residence Relief) and doubt there would be anything to pay.

As I say though I know nothing about separation issues and if/how it affects things.

Hope that helps

Alan

booksurr

if in Jan 2015 you expected the separation to become permanent (ie by implication it will eventually end in divorce) then the clock starts ticking from that date

as saintalan says , you have a further 18 months of CGT exemption under the "deemed occupancy" rule applied to Private Residence Relief from that date to dispose of your interest in the property, either by "sale" to the ex or both of you selling up to a stranger If you do so within that period your entire sale will be 100% relieved of CGT. Deemed occupancy is a generic term applied to the final 18 months of ownership irrespective of whether you live there or not, provided you did once live there.

read: https://www.gov.uk/government/publications/husband-and-wife-civil-partners-divorce-dissolution-and-separation-hs281-self-assessment-helpsheet/hs281-husband-and-wife-civil-partners-divorce-dissolution-and-separation-2015

however, as you expect the disposal to occur in 2017 you would by then be outside the 18 month window and so will incur a very small amount of CGT liability.

So you understand the mechanics of the calculation and can therefore use your own real figures here is an example:

• original cost in say Jan 1989 = 25k, sold in December 2017 @300k: Gain: 275k x 50% (assuming you owned 50/50 with the ex) = 137,500 over ownership period of 29 years
• PRR exemption Jan 1989 - Jan 2015 = 26 years + final 18 months (Jul 16 - Dec 17) deemed occupancy = 27.5 years
• CGT liable period: Jan 15 - June 16 = 1.5 years

CGT net liability:
137.5k gain - PRR (137.5 x27.5/29) - personal allowance (currently £11,100) = ZERO

In the grand scheme of things you need not worry about CGT as you are likely to have zero liability and therefore nothing to pay.
Even if you gain is "massive" the effect of 27.5 years of PRR and your personal allowance will mean you face a tiny net liability and therefore a totally insignificant tax bill

jsbach

Booksurr, that was a brilliant answer. So I assume that when I bite the bullet and go ahead with the divorce, I then need to tell the Inland Revenue as part of the financial settlement. Until I need do nothing.

saintalan

Hi js, I dont think you need to do anything until you realise any gain.

You will then have, at the latest, until the 31st of January following the tax year in which you make the gain to declare and pay any CGT.

getmore4less

Is there not a life interest in the property by the occupant.

A life interst provides a CGT exemption.

there was a case recently where parents sold(market value) the house to their kids retaining a life interest and thge kids got the CGT exemption.