Transferring House any tax implications

calleyw

Me and my husband have split up and will get around to divorcing at some stage.

My husband moved out of house that we lived in in may 2012. Its in his name only. No mortgage, but I did pay towards it. We have agreed between our selves that I will take on the house and transfer it in to my name.

we have agreed that he will get half the value of the house. He has already had £28K. And we have agreed that we I own him another £40K.

No money will change hands on transfer. He will get the money at a later date in a lump sum on retirement in 12 years time.

So are there tax implications that we need to be aware? I know that we have taken our time over it. And are in no rush. But I know that we need to at least get the house sorted out.

Yours

Calley

Savvy_Sue

I don't know about the tax implications, but I am certain you need to get decent legal advice, and a document drawn up detailing your agreement, including some 'what if' scenarios (like what if either of you die before the money has changed hands?)

And I am equally sure that you need to sort out wills, and again have no idea if you can write a will 'in contemplation of divorce' as you can 'in contemplation of marriage'.

And I wonder if 'sorting out the house' needs to become part of 'sorting out the divorce', or at least if sorting them out together will turn out to be a lot simpler than attempting to sort them out separately ...

Am I right in thinking there are no children?

jimmo

Unfortunately the time that has passed since your husband moved out has created a Capital Gains Tax situation for him. If this had all been sorted out before 5/4/14 your husband would have been fully covered by Private Residence Relief. However current rules are that where a person disposes of his former home the Capital Gain realised is apportioned between exempt periods and non-exempt periods. The non-exempt gain is then a chargeable gain.
The main exempt periods are:
The period in which he lived there and:
The final 18 months of ownership.
As it is now more than 18 months since your husband moved out there will clearly be a non-exempt period when he eventually disposes of the house to you and, the longer the delay in sorting this out, the greater the non-exempt period will become.
There are further potential complications regarding:
1) Beneficial Ownership as opposed to Legal Ownership. It seems you may know something about this already given that “I did pay towards it.”
2) the Consideration that passes between the 2 of you.
Believe it or not, the £40k that you will pay him in 12 years time is probably the least complicated bit. That is “ascertainable deferred consideration” and counts fully in the actual Capital Gains computation but could then come into play if your husband wants to pay the Capital Gains Tax bill in instalments.
As a first step, can I suggest that you look at the worst case scenario and give the following?
The date he bought the house.
The cost and legal fees.
Your estimate of the current market value of the house with vacant possession.

calleyw

jimmo wrote: »

Unfortunately the time that has passed since your husband moved out has created a Capital Gains Tax situation for him. If this had all been sorted out before 5/4/14 your husband would have been fully covered by Private Residence Relief. However current rules are that where a person disposes of his former home the Capital Gain realised is apportioned between exempt periods and non-exempt periods. The non-exempt gain is then a chargeable gain.
The main exempt periods are:
The period in which he lived there and:
The final 18 months of ownership.
As it is now more than 18 months since your husband moved out there will clearly be a non-exempt period when he eventually disposes of the house to you and, the longer the delay in sorting this out, the greater the non-exempt period will become.
There are further potential complications regarding:
1) Beneficial Ownership as opposed to Legal Ownership. It seems you may know something about this already given that “I did pay towards it.”
2) the Consideration that passes between the 2 of you.
Believe it or not, the £40k that you will pay him in 12 years time is probably the least complicated bit. That is “ascertainable deferred consideration” and counts fully in the actual Capital Gains computation but could then come into play if your husband wants to pay the Capital Gains Tax bill in instalments.
As a first step, can I suggest that you look at the worst case scenario and give the following?
The date he bought the house.
The cost and legal fees.
Your estimate of the current market value of the house with vacant possession.

Oh Big bag of pooh!!!!! We have been in no rush to do anything. We both trust each and know that we not going to diddle each other.

The more I think of it I am not sure how we got to the figures. I have spoken to him. And it looks like after the mortgage was paid off. We both paid off the remaining mortgage half each. We decided on £50K for him not £60K. As I am not going after his pensions etc.

So I have paid him off £18K. Making £32K left. but I know the value of the house has risen so added another £8K back on making it £40K for me to owe him.

The house was bought in his name only 10 half years ago when moved as I was not working and I was concerned about it lowering the amount we could borrow. So never went on the mortgage. We split the bills and mortgage down the middle as we both earned roughly the same amount.

The house is in the process of being decorated. And I have had a new kitchen fitted and walls all plastered etc. Paid for by me as for my benefit. But its not finished. But I reckon would be about £150K and was bought at £130500K.

It was put on the market in september 2012 for £137K. I have looked at Zoopla estimate and they are suggesting the value is now £176K!!!!!!!

I will get my husband to go and have a chat a with solicitor next week.

Yours

Calley

calleyw

Not sure if this complicates this is any shape or way.

We both lived in a flat for 7 years before we moved on a mortgage in my name only as husband was not in perm job at the time of buying. When we moved the 60K equity was used as deposit on the new property.

I do remember being asked if I wanted to protect it and I said no as to me it was joint equity as husband paid half the bills and mortgage in the flat.

He also stumped another 20K. He had a 50K offset mortgage. Which we over paid as and when we could.

We are happy with the figures of money owed. I could not get a mortgage as that the moment. As due to person reasons at the moment I am temp as and when I want. So the money needs to be saved and then paid. Also my husband did not want me to take out a mortgage. And he does not need the money at the moment.

I think we both need to go and see solicitors. And no I had no idea about beneficial owner. Just mentioned about me paying the towards mortgage and bills in passing.

Yours

Calley

jimmo

First of all it looks like there will be no tax to pay provided you get on with sorting the house out pretty soon.
There is still a Capital Gains situation and your husband may need to declare the Capital Gain even though no tax is payable.
Provided your husband has no other Capital Gains issues I would suggest that the easiest way to deal with this is to simply go along with the legal ownership and not bother about beneficial ownership. I’ll come back to that later.
You would then have :
House purchased May 2005 £130,500
House sold November 2015 £176,000
Capital Gain £45,500
Period of ownership (05/05 to 11/05) 126 months
Exempt periods are:
Period of occupation (05/05 to 05/12) 84 months
Final 18 months of ownership 18 months
Total of exempt periods 102 months
Therefore exempt gain (102/126 *45,500) £36,833
Chargeable gain (45,500 - 36,833) £8,667
https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief
We are all entitled to the (personal) “annual exempt amount” which is currently £11,100. As this is more than his chargeable gain no tax is chargeable.
https://www.gov.uk/government/publications/rates-and-allowances-capital-gains-tax/capital-gains-tax-rates-and-annual-tax-free-allowances

My computation above can obviously be tweaked by taking account of such things as the legal costs of purchase and disposal, improvement costs such as the new kitchen but probably not plastering which is more likely to be a repair.
However, as long as the tax chargeable is nil, I don’t see any point in making things more complicated than they need to be.
Coming back now to beneficial ownership it seems to me that you would have quite strong arguments to say that you have been a 50% beneficial owner throughout. Beneficial ownership is the true test of ownership but HMRC’s default position is to assume that legal ownership indicates the beneficial ownership unless someone claims differently. Again, I see no point in creating an argument if there is no practical purpose in doing so.
As regards timing I hope I have demonstrated that sorting out the house now is the best option tax wise but each month that you allow to pass by will change the fractions I used. For each month that passes both the period of ownership and the non-exempt period will increase and it really won’t take very long for tax to become payable.
Yes you can probably get around that if necessary but is it worth the worry and hassle?

calleyw

Jimmo,

Should I get an estate agent or two to come and value the property in next week or so? And get them to put that in writing? While I down load and sort out the forms for the land registry.

I will check out and try and print the forms out tomorrow for the land registry. If my printer will allow that.

Now a dumb question what other things could count towards CGT? I will go off and google it in a min.

Thanks again you have been so helpful. I know we should have sported this out before but as I said we where not in any rush and had no idea that it would cause any issues.

I will pop over to the house buying board and double check on the forms we need to fill in for the transfer.

Yours

Calley

jimmo

calleyw wrote: »

Jimmo,

Should I get an estate agent or two to come and value the property

Many would say that is the right thing to do. Personally, I wouldn’t bother but I would be quite comfortable with both the figure work and negotiating with the Valuation Officer if necessary.
As long as you get the house transfer sorted out this month we can see from my computation in post #6 that 102/126 of the overall capital gain is exempt so 24/126 is chargeable.
So, for every £1,000 your valuation is out the chargeable gain would increase by (24/126*1000) £190.
From the same computation you have a safety margin between the computed gain and the annual exempt amount of (11,100 - 8667) £2333.
Therefore your (Zoopla) estimate would have to be out by more than (1000*2333/190) £12,278 for tax to become payable.
I don’t know whether I’m teaching my granny to suck eggs here with simple sums or blinding you with my mathematical brilliance but, very roughly speaking, for a basic rate taxpayer, each additional £5,000 in valuation will produce additional tax of £180.
With regard to your “dumb question” I would think that for the majority of people chargeable assets will be houses and shares and, unless your husband is involved in some sort of SAYE or share options scheme in his job, it will not be an issue.

calleyw

Jimmo,

My maths are terrible but think I get the maths behind it.

Husband has shares and he has a few on drip the rest pay him dividends. He holds on to his shares so does not sell them. He is disabled so his only income is his benefits ESA and DLA. He had a stroke so does not want to be dealing with anything to long or complicated.

I have got some estate agents coming round towards the end of next week. Would rather have a paper trail as its my husbands affairs and I want to make it as simple as possible for him.

We moved in to this property in March 2015 and he moved out in May 2012.

I have got all the forms I believe that I need to deal with the transfer. Just need to work out how to fill them. I am suffering with a cold at the moment so I have a muzzy head so anything at the moment is a struggle unless it is 1 + 1 :rotfl:

I am so grateful for your help.

Yours

Calley