CGT lump sum divorce

Rachna_83

Some help and advice needed please. Finance part of divorce has been agreed and order made. Ex will pay me a lump sum for transfer of house to him. Question is do I need to pay CGT on the lump sum?
House purchased Apr 2012 £106000
Started living there Dec 2012
I moved out Nov 2019
Finance order made Nov 2021
Market value £155000
Decree absolute has not been applied for yet.
Thanks

Rachna_83

I will receive lump sum of £96,875

Jeremy535897

"Private Residence Relief

You may be entitled to Private Residence Relief on any gain arising on the disposal of your only or main residence. You and your spouse or civil partner can’t have more than one residence or main residence between you for the purposes of the relief at any time while you are living together. (You’re treated as living together unless you are separated under a court order by Deed of Separation, or are otherwise separated in such circumstances that the separation is likely to become permanent.) Following separation, the residence which is your only or main residence for the purposes of the relief need not be the same as that which is your spouse’s or civil partner’s only or main residence for such purposes.

Where, as part of a financial settlement on separation, divorce or dissolution, the spouse or civil partner who has ceased to occupy the matrimonial or civil partnership home:

• transfers an interest in that home to the other spouse or civil partner
• the date of transfer takes place more than 18 months after the time when the spouse or civil partner last occupied the matrimonial or civil partnership home full Private Residence Relief will not be due

However, the former matrimonial or civil partnership home can be treated as the only or main residence of the transferring spouse or civil partner from the date his or her occupation ceased until the earlier of the:

• date of transfer
• date on which the spouse or civil partner to whom the property is transferred ceases to use it as his or her only or main residence

However, relief for the same period can’t be given for another property (except for the final 18 months of ownership of the matrimonial or civil partnership home) so this concession may not be the best choice in every case."

From 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

You lived there for 83 months out of a total of 116 months. Your maximum gain, without any reliefs at all, would be £155,000 - £106,000 = £49,000. At least 83+9 = 92 months out of the 116 qualify for main residence relief, so the chargeable gain would not exceed £49,000 x 24/116 = £10,138. If you have no other gains, your annual exemption of £12,300 would reduce the gain to nil. In addition:

• if you owned the house jointly, and are transferring only half, the taxable gain would be halved
• there should be costs of acquisition and transfer to take into account
• there may have been improvements to the property
• the initial period of non-occupation may itself be exempt, depending on the reasons for it

[Deleted User]

So - you were part owner for 115 months. It was your main residence for 83 months plus nine months to be added as it was your main residence at some point - 92 months exempt. 

Gain on house is 96875 minus 53000 (your half share of cost) equals 43875. 92/115 of this is exempt -  35100 leaving 8775 chargeable which is under the 12300 allowance and no tax, therefore, to pay.

You could also add half of the legal costs to the purchase price but, as there is no tax to pay, it would make no difference.

Note that you will have to declare this on a tax return for 2021/22 - to be submitted by 31st January 2023. 

[Deleted User]

Jeremy535897 said:

"Private Residence Relief

You may be entitled to Private Residence Relief on any gain arising on the disposal of your only or main residence. You and your spouse or civil partner can’t have more than one residence or main residence between you for the purposes of the relief at any time while you are living together. (You’re treated as living together unless you are separated under a court order by Deed of Separation, or are otherwise separated in such circumstances that the separation is likely to become permanent.) Following separation, the residence which is your only or main residence for the purposes of the relief need not be the same as that which is your spouse’s or civil partner’s only or main residence for such purposes.

Where, as part of a financial settlement on separation, divorce or dissolution, the spouse or civil partner who has ceased to occupy the matrimonial or civil partnership home:

• transfers an interest in that home to the other spouse or civil partner
• the date of transfer takes place more than 18 months after the time when the spouse or civil partner last occupied the matrimonial or civil partnership home full Private Residence Relief will not be due

However, the former matrimonial or civil partnership home can be treated as the only or main residence of the transferring spouse or civil partner from the date his or her occupation ceased until the earlier of the:

• date of transfer
• date on which the spouse or civil partner to whom the property is transferred ceases to use it as his or her only or main residence

However, relief for the same period can’t be given for another property (except for the final 18 months of ownership of the matrimonial or civil partnership home) so this concession may not be the best choice in every case."

From 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

You lived there for 83 months out of a total of 116 months. Your maximum gain, without any reliefs at all, would be £155,000 - £106,000 = £49,000. At least 83+9 = 92 months out of the 116 qualify for main residence relief, so the chargeable gain would not exceed £49,000 x 24/116 = £10,138. If you have no other gains, your annual exemption of £12,300 would reduce the gain to nil. In addition:

• if you owned the house jointly, and are transferring only half, the taxable gain would be halved
• there should be costs of acquisition and transfer to take into account
• there may have been improvements to the property
• the initial period of non-occupation may itself be exempt, depending on the reasons for it

Interesting - and I changed my reply while I went to do some research and then you stepped in. How have you regarded the fact that the op received more than half of the value of the house - 93875 as opposed to 77500?

Jeremy535897

I assumed that the lump sum covered something else as well.

[Deleted User]

Jeremy535897 said:

I assumed that the lump sum covered something else as well.

I agree - but then I changed my mind! I also considered that you may have come across some legislation regarding this. Having spent a lot of time dealing with ancillary relief, it  still annoys me how awards never, and I mean never, take into account any tax implications for either party - something I always insisted upon. Perhaps the op could clarify how much of the £96875 was for the house? However - I would guess that all of it was for the house as £96875 represents a 5/8  to 3/8 arbitrary split of the £155000 valuation.

Rachna_83

Thanks for all the replies.
Yes the lump sum is for the house representing 62.5% of the share.
So could the capital gain be worked out as 62.5% of £49,000?

[Deleted User]

Rachna_83 said:

Thanks for all the replies.
Yes the lump sum is for the house representing 62.5% of the share.
So could the capital gain be worked out as 62.5% of £49,000?

Definitely not - you are entitled to claim relief for the time it was your principal private residence - see my first post above.

Proceeds 96875 less cost 53000 - gain before reliefs 43875. 

Claim for PPR 92/115 x  43875 is 35100.

Chargeable gain -43875 less 35100 is  8775 - below annual exemption of 12300.

Jeremy535897

[Deleted User] said:

Jeremy535897 said:

I assumed that the lump sum covered something else as well.

I agree - but then I changed my mind! I also considered that you may have come across some legislation regarding this. Having spent a lot of time dealing with ancillary relief, it  still annoys me how awards never, and I mean never, take into account any tax implications for either party - something I always insisted upon. Perhaps the op could clarify how much of the £96875 was for the house? However - I would guess that all of it was for the house as £96875 represents a 5/8  to 3/8 arbitrary split of the £155000 valuation.

It's very surprising that family solicitors almost never consider tax, but in this case it may have worked out well, by increasing the amount attributable to the house rather than something else on which tax might have been payable. I didn't worry about it too much, as even if 100% of the house was treated as sold by OP, the gain was still under £12,300.

It seems inherently odd to be paid 62.5% of the house's value if you own only 50% of it. It makes me wonder whether OP paid more of the mortgage, for example. Our calculations might be off if £155,000 market value is actually a bigger figure less the balance of a mortgage, although the OP did not read like that.

[Deleted User]

Jeremy535897 said:

purdyoaten2 said:

Jeremy535897 said:

I assumed that the lump sum covered something else as well.

I agree - but then I changed my mind! I also considered that you may have come across some legislation regarding this. Having spent a lot of time dealing with ancillary relief, it  still annoys me how awards never, and I mean never, take into account any tax implications for either party - something I always insisted upon. Perhaps the op could clarify how much of the £96875 was for the house? However - I would guess that all of it was for the house as £96875 represents a 5/8  to 3/8 arbitrary split of the £155000 valuation.

It's very surprising that family solicitors almost never consider tax, but in this case it may have worked out well, by increasing the amount attributable to the house rather than something else on which tax might have been payable. I didn't worry about it too much, as even if 100% of the house was treated as sold by OP, the gain was still under £12,300.

It seems inherently odd to be paid 62.5% of the house's value if you own only 50% of it. It makes me wonder whether OP paid more of the mortgage, for example. Our calculations might be off if £155,000 market value is actually a bigger figure less the balance of a mortgage, although the OP did not read like that.

‘Fog of war’ - I keep the dog, ride on lawnmower, nice picture in the lounge, jacuzzi - whatever -  and will agree to split the house 62.5 / 37.5 rather than 50:50. 

It’s all a game of numbers at the end of the day.