Clarification on CGT for ex marital home.

CageUK

Hi All.

We purchased a house in Dec 1981 for £18,000 with extension work in 1988 which took the mortgage value to £33,000.
We split up in May 2001 with me moving away from the property and we subsequently divorced.
The mortgage was fully paid up by myself in 2011.
The property has just been sold (May 2017) for £240,000 and after expenses etc my share of this was just over £116,000
I don't, and have never owned any other property but have always cohabited or rented etc.

I've heard that buying a property within 6 months will negate the need to pay capital gains tax and also some vague mutterings about reinvesting the money in the same time having the same effect (though I'm not paying much heed to that at this stage).

Although £116,000 sounds, and is a lot of money, by the time my credit card debts are paid off I'll have just over £100k. The remaining amount is unlikely to buy me anything in the area. I also wanted to give myself some security for my retirement (I'm 54). This will be made more acute with a large capital gains tax bill.
I'm self employed now and very very unlikely to be able to get (or afford) a mortgage so the cash I have is my only hope.

Also, because I've not lived in the property since 2001 does any of this even apply to me anyway despite the fact I've never purchased another property? My family remained in the property with me paying the mortgage.

I'm still googling to find information but I've not yet been able to find anything relevant to my situation.

Many thanks in anticipation

00ec25

Firstly forget everything you have "heard" because it is rubbish and will just confuse you. Also mortgages have nothing whatsoever to do with CGT liability, don't even think about mortgages when looking at CGT.

there are, as you'd expect, several issues in play before we reach the final position:

1. you have owned the property since before 31 March 1982

2. CGT is based on 2 factors: a) you own the property in question and b) was it your main/only home for the entire period you owned it: In your case that is a) yes and b) no. So the no makes you liable for CGT, however, the amount you will have to pay depends on a lot more answers...

3. the gains for CGT purposes start on 31 March 1982. As you owned the property before that date the gain used in your calculation will be the property's value at 31/3/82. That may be close to what you paid to buy it in 1981 but it would never be exactly that same figure, you may need a professional valuer to help you work out what that figure should be so you can start your calculation from the same point that HMRC will use. HMRC has its own in house valuation dept and they are red hot on ensuring March 1982 values are "reasonable".

4. In principle you will get Private Residence Relief (PRR) for the period you lived in it as your marital home plus, because of that, you also get the final 18 months of its ownership as an additional exempt period irrespective of whether you did or did not live in it during those 18 months. BUT...

5. You got divorced... were the children still under 18 at the date of the divorce and most importantly was a "mesher order" made as part of the divorce??? If ye,s then although you no longer occupied the property yourself, you can elect to retain a claim to PRR on that property up to the date when the mesher order ends. This rule is intended to ensure that ex husbands like yourself are not unfairly exposed to CGT when they continue to own a property that they do not use as their main residence but cannot freely sell it because it remains the home of their children under the mesher order. Where there is no mesher order, the date when the property ceases to be your main residence is the earlier of the date you stopped "living together" (yes tax law really does say that) which is deemed to be the point at which the separation became permanent and may therefore pre date a court divorce date. The fact you do not own any other property is irrelevant, the issue is which is your main residence, and that obviously becomes the rental property at some point in time given you are no longer living together in the still co-owned but no longer "marital" property

6. Your CGT liability is a many step calculation:
i) work out your share of the property. If owned as Joint Tenants that will be 50%. If owned as Tenants In Common it will be whatever % you agreed at time of purchase (hopefully formally documented as such and probably reaffirmed as part of the divorce)

ii) "Gross Gain" = (actual sales price 2017 - derived value @ 31/3/1982 - legal fees for purchase and sale - Estate Agent fees on sale - costs of any capital improvements, the extension costs would feature here, but not necessarily all of them and of course you must have invoices/documentation to prove the figures you use) x your share as per i) above. That figure cannot be the £116,000 you currently think it is, it will probably be considerably less than that

iii) PRR = Gross Gain x % of time it was your main home (ie period in months when it was your main home / total ownership period). Clearly this will depend on which of the mesher order, divorce date or date the separate became "permanent" is applicable

iv) net taxable gain = Gross gain - PRR - personal allowance (£11,300 at 17/18 rate)

v) if the net taxable gain is >0 that is the figure on which you will pay CGT. How much you pay depends on how much income you have that year and therefore how much of the gain is taxed at 18% and how much is taxed at 28%

Until you fill in the blanks above there is no point trying to calculate a figure for you.
https://www.gov.uk/capital-gains-tax/overview

https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet

https://www.gov.uk/government/publications/husband-and-wife-civil-partners-divorce-dissolution-and-separation-hs281-self-assessment-helpsheet/hs281-spouses-civil-partners-divorce-dissolution-and-separation-2016

CageUK

Thanks very much for such a comprehensive reply I very much appreciate it. It is certainly looking much more convoluted than I feared and having scared my self silly with a standard online calculation (saying the total CGT would be around 52k and I'm assuming my half would be 26K) I'm seeing that this will not be the case.

There was no mesher drawn up at the time of the split and in fact this is the first time I've even heard of it so it appears I will become a victim of my own ignorance.
There was 1 child under under 18 (16) at the time. My wife and kids continued to live in the property and no rental was ever taken on the property. My wife was also on the deeds to the house making it jointly owned which was an important fact I'd only just thought about.

Looks like I'm going to delve much deeper into this.

Once again, thank you for your reply.

00ec25

CageUK wrote: »

Thanks very much for such a comprehensive reply I very much appreciate it. It is certainly looking much more convoluted than I feared and having scared my self silly with a standard online calculation (saying the total CGT would be around 52k and I'm assuming my half would be 26K) I'm seeing that this will not be the case.

purely as an academic exercise, and in no way is this an accurate final figure, but going on what you have said let us do a very rough illustration

assumptions:

• owned 50/50. Sold for 240k and "your share" is 116 after costs so costs must be 8k
• March 1982 value (guess) = 1981 price + a bit. Let us call that 18,200?
• The threshold for SDLT was 20k in 1980 so I doubt you paid any given a purchase price of 18k. So let us assume £200 legal and other cost when you purchased in 1981
• let us assume all 18k of the extension costs is allowable and you have the invoices etc to support that. You will need to check if any of the costs are in fact repair work ("revenue" costs) rather than new build costs ("capital" costs). Only capital costs are allowed against your Capital Gains tax !
• you earn a 20k salary and therefore have 25k of your basic rate tax threshold remaining

gross gain: 240 (May 17 actual sale) - 18.2 (March 82 value) - 8k (selling costs) - 0.2 (buying costs) - 18 (capital extension) = 203,600
your share 50% = £101,800

CGT ownership period: March 1982 - May 2017 = 423 months
lived in as marital home March 82 - May 2001 = 231 months
PRR period 231 + final 18 months = 249

PRR claim 101,800 x 249/423 = 59,925

net taxable gain = 101,800 - 59,925 - 11,300 (personal allowance) = 30,575

CGT payable:
@18%: 25k remaining from basic rate income threshold so 25 x 18% = 4,500
@28% 30,575 - 25 = 5,575 x 28% = 1,561
Total CGT payable £6,061

Therefore, based on the above (probably wild) assumptions your share of the post tax proceeds will be £120,000 - selling costs share (4k?) - CGT 6,061 = £109,939

CageUK wrote: »

There was no mesher drawn up at the time of the split and in fact this is the first time I've even heard of it so it appears I will become a victim of my own ignorance.
There was 1 child under under 18 (16) at the time.

Shame, but it would not have made a huge difference then as it would have only added 2 years to your PRR claim as mesher orders run until the kid is age 18

CageUK wrote: »

My wife and kids continued to live in the property and no rental was ever taken on the property.

You continued to own the house but were not "living together" with her, so her existence is irrelevant. You are taxed on what is yours as an individual person

The fact no rent was paid by her for her occupation of your "part" of the house is probably just as well, as that would be a complication you could do without

CageUK wrote: »

My wife was also on the deeds to the house making it jointly owned which was an important fact I'd only just thought about.

"jointly owned" is a meaningless phrase - please make sure you understand the difference between Joint Tenants and Tenants In Common as it has to be one or the other and which it is matters

https://www.gov.uk/joint-property-ownership/overview

CageUK wrote: »

Looks like I'm going to delve much deeper into this.

Once again, thank you for your reply.

good luck, post back if you need any further help