CGT / Income / Inheritance tax due or not? Divorced

clairey22

Hi,

I hope someone can answer my question, I have tried searching but I am getting more confused. We are both late 30's, if that is important for inheritance tax reasons.

Timeline of events:

March 2017 - My (then) husband moved out of family home divorce proceedings started.

August - 2018 - Decree Absolute granted

June - 2018 - Ex husband removed from deeds and property and mortgage transferred into my sole name (I live in the house with young children).

We did the divorce ourselves as we are in agreement over the finances. We have agreed that he is due a payment of 50K as part of the split. This figure is based on his equity share of the property. The house was on the market with the price dropped several times for 8 months and did not sell (It is my preference to keep the family home anyway).

We have a DRAFT consent order that states we will not take each others pension etc and the 50K from me to him is the only thing that is payable. The consent order states I will pay this within 2 years or the house will be put on the market in order to pay this money (there is equity in the house). The consent order has not been sent off yet (Yes I know this should have been done!)

My question is are either of us responsible for any sort of tax on the 50K? He is a higher rate tax payer.

Thanks in advance
Clairey

00ec25

husband is liable for CGT as the property is no longer his main home

he moved out in tax year 16/17 but the transfer of the property from him to you did not take place until June 18 in tax year 18/19

you stopped living together in March 17 in tax yr 16/17 but because the transfer took place in 18/19 the later date of the divorce, so Aug 17 (I assume Aug 18 is a typo) should be noted (see final comment below)

BUT, because it was obviously husband's main home until mar 17, he had 18 months from that point onwards of extended private residence relief. Technically it should be done in days, but if we assume he moved out IN march 17 then the clock starts ticking from Apr 17. Apr 17 + 18 months = Sept 18

therefore he will not pay any CGT because his entire ownership period is covered by PRR despite the fact he ceased living there in Mar 17.

Obviously if the transfer is delayed until after Sept 18 then the date and rules re the divorce are back to being relevant

see section 6
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-2018

clairey22

Thanks 00ec25 for the info.

Yes sorry it was a typo, decree absolute was Aug 2017.

The consent order states that the payment is due within 2 years. I was planning on paying say approx 10K now and the remainder at the end of the 2 years as I do not have it all at the moment. Does that timing affect anything? He will not get it all before September 2018 that is for certain.

Thanks
Claire

00ec25

clairey22 wrote: »

Does that timing affect anything? He will not get it all before September 2018 that is for certain.

no effect (if you play fair)

the CGT liability is based on the exact date at which the "disposal" (ie in your case the transfer) becomes unconditional
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14270

the fact that the "consideration" (the cash) is deferred and payable in instalments does not alter the fact that the property transfers from him to you on date X because that is the date you make change at the Land registry and he ceases to be the legal owner. As ever there are technicalities associated with beneficial ownership, which is what CGT is actually based on, not legal ownership.
However, my reading of your scenario is:
- you appear to have a written agreement setting out exactly what he is entitled to in money terms (his beneficial ownership),
- that entitlement is triggered when the transfer of the property (legally) completes
- the entitlement is therefore unconditional from the date of completion, ie. the Land Registry record date which is therefore the date of "disposal" for CGT purposes

so do the transfer before Sept 18 !
Separately he can then of course sue you at his leisure if you start getting funny over non payment of the cash he is entitled to have

[Deleted User]

From memory the date of disposal is when the date upon which the sale became unconditional or, in layman!!!8217;s terms, when you committed to the deal. When money changes hands is not relevant. So.. it!!!8217;s June 2018.

clairey22

Hi,

Thanks for the info. I really appreciate it. I am trying to get my head around it all.

Just a few points...

The house transfered over to me last month.

The consent order states the money is payable within 2 years of the date of the order if the property is sold. However the consent order has not been sent off yet due to drafting errors and lack of cheque book! but will be sent off this week (I am not trying to get out of paying).

I don't have access to that sort of money to be paid any earlier than in 2 years time as the house has not been sold, so it could not be paid sooner.

I'm not sure if you are saying that CGT is payable if I take 2 years to pay it but not if it is paid within a certain timescale?

clairey22

Ah so are you saying if I pay the money outside of 18 months from June 2018 (when the asset was disposed) then he would need to pay CGT?

[Deleted User]

What we are both saying (I hope) is that the date if disposal is June 2018. When the money is paid does not change this fact. No CGT would be payable on that fact alone.

clairey22

Ah I see!

I hope so too!

Many thanks for your help

Claire