Capital gains tax on property following divorce

monkeylizard

Hi

Please could anyone with any experience and/or knowledge offer some advice?

I purchased a house with my now ex-wife in 1998. The purchase price was £99k. The mortgage was joint, and both are named on the deeds.
In Nov 2011 we separated and I moved out of the house.
Following mediation, it was agreed that she should stay in the house with the children for the foreseeable future and that, at a later date, I would be due a share of the house (roughly 10% of the gross sale price). I am still named on both the mortgage and deeds.
Decree absolute was granted in July 2013.
Since separation I have been living in rented accommodation (now re-married).
My ex-wife is now selling the house and intends to pay me as per the agreed mediation details - the asking price for the house is £445k.
I've read various articles on capital gains tax but am still unsure. So, (hopefully) simple question - will I be liable for capital gains tax when I receive my share of the sale (roughly £45k)?

Many thanks in advance for any help you can give me with this.

Best regards,
monkeylizard

booksurr

simple answer: YES

I am surprised you have not read this....
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/323663/hs281.pdf

- you are divorced, so cannot claim it as the marital main residence
- you own a property you do not live in as your main residence is elsewhere (and yes CGT liability is not based on whether you own a second property, a rental counts as your home - unless you are merely a lodger)

you are therefore liable to CGT for the period you have not lived in it since the separation became permanent. You may be able to get that assessed as the absolute date although on the info you provide it looks much more like the date you moved out as that is obviously when you ceased "living together" as defined in the guide

monkeylizard

Thanks for getting back to me so quickly.

I did read the advice that you linked to, but that raised more questions that it answered.

Firstly, as I'm currently renting, and am still named on the mortgage and deeds of the house being sold, I was unsure how this affects the Private Residence Relief.

Secondly, the document states that "Each of you will pay tax only on your own gains and you will get relief only for your own losses." Given that the house was purchased jointly for £99k and that my share from the sale will only be £45k, does that not mean that I have made a loss?

Thanks again.

parkrunner

I may be talking nonsense but how much of the £45k is an actual gain. During the 13 years of living in the property how much did you pay towards the mortgage and how much deposit did you pay. Aren't those payments deducted from the £45k to work out if there is any CGT to pay?

cte1111

In general, this is how it would work. As the house was your principal residence from 1998 to Nov 2011, you will be entitled to PPR for this period. You will also get PPR for the last 18 months of ownership.

So it would only be the period between when you moved out Dec 2011 to 18 months before it sells, that would be your net capital gain. I'm unsure if you technically own 10% now or 50%, but are only going to receive 10%. However if you take 10%, it sounds like your gain may well be within your annual CGT allowance of £11,100.

Quick figures off the top of my head:
Overall gain on the house is 445-99 = 346
Half of this is 173K
PPR applies to 14.5 out of the 18 years of ownership
So taxable gain would be £33,444, which is well over your CGT allowance.

If your ownership was just 10%, then your gain would £6,688, with no CGT to pay. I suggest you consult the solicitor that drew up the divorce, as they may well be able to help clarify your ownership and possibly any other exemptions.

monkeylizard

Thanks for everyone's very generous help.

My uncertainly was based largely on whether I'm actually making a gain.

The deposit on the property was paid jointly.
During my time living there I paid half of the mortgage.
Both myself and my ex-wife are named on both the mortgage and the deeds.
I believe that I still technically own 50% of the property but will only be receiving 10% of the gross sale price as agreed at mediation (this was never submitted to court).

booksurr

monkeylizard wrote: »

Thanks for everyone's very generous help.

My uncertainly was based largely on whether I'm actually making a gain.

The deposit on the property was paid jointly.
During my time living there I paid half of the mortgage.
Both myself and my ex-wife are named on both the mortgage and the deeds.
I believe that I still technically own 50% of the property but will only be receiving 10% of the gross sale price as agreed at mediation (this was never submitted to court).

parkrunner is indeed talking nonsense

the deposit and mortgage are irrelevant

your gain is the difference between what it sells for now and what you originally paid for it. That gain is then split according to what share you own and what share the ex wife owns

CGT is based on the concept of beneficial ownership, not the legal ownership of who owns what. Your mediation says you are entitled to 10% then that is the amount by which you benefit from the sale of the house so your CGT liability is based on 10% of the gain and is therefore as shown by cte1111 most likely no tax payable.

silvercar

question for booksurr.

In these circumstances the beneficial ownership at sale is 10% of the property value. Would the starting point be 10% of the purchase price, to match, or would it be 50% as they bought as joint owners?

Quite an interesting split, as usually people talk of splitting the equity after the mortgage is cleared rather than gross shares.

monkeylizard

The equity split was decided at mediation (early 2012), as suggested by the mediator as I (and probably my ex-wife) knew no better, on the following basis:

It was agreed that I stop paying towards the mortgage, dated from when I moved out.
The house was valued at this time, and the current equity calculated accordingly.
A split of 55/45 (in favour of my ex-wife) of that equity was agreed upon.
That figure in £s was calculated as a percentage of the valuation.
It was then agreed that this percentage of the gross sale price would be my share at whatever point in the future the house was sold.

booksurr

silvercar wrote: »

question for booksurr.

In these circumstances the beneficial ownership at sale is 10% of the property value. Would the starting point be 10% of the purchase price, to match, or would it be 50% as they bought as joint owners?

Quite an interesting split, as usually people talk of splitting the equity after the mortgage is cleared rather than gross shares.

The only time the relative shares changed was as part of a "settlement". The only time you apply the respective shares to the gain is when a disposal arises, so the question is how many disposals have taken place?

As you know spouses transfer shares between themselves on a no gain no loss basis. However, at the point the mediation was agreed there may be a case for saying that the relationship had at that point become a permanent separation and therefore spousal transfer rulers were no longer available, so a part disposal may have occurred. But, the formal divorce was later, before which time the 10/90 had been agreed, so I would argue it is reasonable to say that the agreement was not in fact a part disposal of 40% by the OP to his ex and therefore that change in shares at that time can be ignored as it was effectively a tax free "spousal" transfer as it pre-dated the divorce. There is however an element of timing and interpretation inevitable in such an argument as obviously HMRC would not always agree with it since it means a taxing opportunity is lost

spouses can alter their shares as many times as they want (think rental income and income tax planning) but the CGT is only applicable on the share at point of disposal.

On balance, in this case, I would say that you need not split the calculation into a 50/50 segment and a 10/90 segment as there was no disposal "event" by a person liable to CGT at the point of the settlement. Thus the only disposal event to arise with persons then liable to CGT is the disposal of the whole property, at which point 10/90 applies.

kinger101

There's an article on the subject here in Taxation.

http://www.taxation.co.uk/taxation/Articles/2015/07/13/333365/home-broken-home