Do I owe CGT - Deed of Agreement - Divorce - buy out at 30%

clairebradshaw

Hi everyone - I am at the point of the financial agreement going to Court to be sealed at the end of my Divorce. In 2000, when my ex and I bought our only property, my inlaws organised a Deed of Agreement so they could give us £30,000 towards the deposit (House value £109,500). 

The Deed stated they would give us the money if we agreed to:
a) Upon sale of the property they would gain 50% of the Net Proceeds
b) We would continue to pay the mortgage, but if we failed to or the property would go into Negative Equity, the Inlaws would pay off the mortgage, we would hand over the Deeds and they would Evict us all (My ex, myself and our 3 children) from the property. 
c) If b occurred, they would then sell the property and keep all of the money. 

The threat of this has kept me in line for many years, but in 2017 I had enough of certain goings on and decided to break up with my ex. The household became untenable to live in (Police were involved at one point) and I decided to move out in Jan 2018. My ex demanded I hand over the only key. 

We agreed that as I was the higher earner I would continue to pay for the small 2nd mortgage (now paid off) and the interest on the main mortgage (Now £143,000. I do not know how).

I started Divorce proceedings in October 2021, reaching Nisi in Jan 2022. My ex did not want to break the Deed of Agreement (undated), did not want to sell and couldn't afford to buy me out. By June 2022, in Financial Mediation, I offered my ex degrees of % of the property to be indemnified against the Deed of Agreement. My final offer was 65-35% in their favour, upon sale of the property. At this point my ex demanded 70-30%, no sale, but a buy out financed by ... the Ex inlaws. 

Three valuations were sought, but my ex demanded we use the lower of the three instead of an average. Under a great deal of stress and costing me more and more in legal fees (The ex inlaws are multi millionaires and can fund legally indefinitely), I gave up and agreed to their demands. 30% to me at the buy out of the lower house value. 

In the Court documentation there is careful wording by my ex's Solicitor that I will be liable for all CGT due and I will promise to indemnify my Ex against any CGT due on the transfer of ownership and the 30% pay out. My solicitor has reworded this to ensure any liability will be any I have will be mine, not for my ex. 


My question is one of complete confusion - why on earth will I have to pay CGT??

a) I moved out of the property in Jan 2018, whilst still paying on average £230 in interest a month - after 5 years this is £13,800~ (The interest now is £450 - Thanks Liz Truss)
b) I have paid rent since then which equals £61,000 since Jan 2018
c) I paid off the remaining ~£2000 2nd mortgage on the property. 
d) My ex has had quiet enjoyment of the property
e) I am only getting 30% of an artificially deflated value of the property. 30% = ~£61,000
f) Not with standing the standard divorce legal fees, extra Mediation payments whilst my ex did not pay anything due to low income, I paid many months extra ongoing legal fees per month because of my ex inlaws shear bloody mindedness.  

After all this, and the Government want me to pay CGT? What gain? Where have I possibly gained in this farce? This is not even talking about the effects on my mental health AND the fact I have barely seen my grown children who took sides. The final twist of the knife is the possibility of paying CGT. Someone tell me this is not so...

kind regards
Claire

Jeremy535897

The basic principle is this. You and your husband jointly owned a property. You paid £109,500 between you. Now let us say it is worth £203,000 based on your estimate of the value of 30%. Your share is £61,000. Assume you only paid for 30% of the property (I know you probably paid more, but bear with me). Your gain is £61,000 - £32,850 = £28,150.

Assuming it was your main residence for 210 months, and not your main residence for 56 months, so the total ownership period is 266 months, 210 + 9 = 219 months are exempt (actual occupation plus last 9 months ownership), and 47 months are taxable. Applying this to the gain of £28,150, the chargeable gain would be £28,150 x 47/266 = £4,974, well within your annual exemption of £12,300, assuming you have no other gains. So in all likelihood you have no tax to pay.

You have to separate income from capital, and debt from assets. Paying interest (whether your fair share or not) has no impact on the calculation of your capital gain. Future rent you pay is equally irrelevant. So is what the mortgage is, or who pays it off. If someone buys an asset for £500,000 and borrows £200,000 to do it, then pays the debt off and sells the asset for £600,000, they make a capital gain of £100,000. It would be the same if they paid back part of the debt, or none of the debt, or whether they took extra borrowing out so received no net sale proceeds at all when the asset was sold.

I have oversimplified the calculations, as you need to use the actual months and figures, not my estimates. You may have owned half the house, so your base cost would be higher. There may be improvements to adjust for, and acquisition costs. Some of your legal costs may be deductible as selling costs. None of this really matters if the answer is that you still owe no tax.

If for any reason you think you do owe some tax, perhaps because you have made other gains, have a look at this advice (I did not include it earlier as it may well not matter):
https://www.litrg.org.uk/tax-guides/savers-property-owners-and-other-tax-issues/capital-gains-tax/capital-gains-tax-0

clairebradshaw

Thanks for this - my ex was very dodgy over the marriage - we split because I found out debts had been racked up in my and their name. Luckily this has all been cleared and my credit score is returning to normal etc. To me, I can't see how I have made any gain in this - I am in a Negative - it is the ex-inlaws who put in £30,000, bought me out at £61,000 (£91,000 total) and are taking the mortgage over, not my ex. Therefore they stand to gain a property worth a minimum of £252,500 by parting with £91,000. My experience from this divorce is that the Law is neither fair or balanced. There was no protection from my ex-inlaws demanding whatever they wanted and holding out for more and more until they got away with financial murder. The fact that the Tax department doesn't care and just wants its cut (Not withstanding my annual exemption) makes everything just worse. Thanks for the link I will have a look  

Jeremy535897

They are going to be parting with more than £91,000 if they are going to have to pay off the mortgage though, aren't they? If they are paying you £61,000 and releasing you from some debt you owe, they are actually paying you more than £61,000, and that enhanced amount represents your sale proceeds.

clairebradshaw

Jeremy535897 said:

They are going to be parting with more than £91,000 if they are going to have to pay off the mortgage though, aren't they? If they are paying you £61,000 and releasing you from some debt you owe, they are actually paying you more than £61,000, and that enhanced amount represents your sale proceeds.

I don't owe any debt. My ex put it it into my name without my knowledge - they got my daughter to pay off a lump of it and the other debt collector agreed to cancel the other one. 

Not withstanding the mortgage some how jumped from £79,000 to £143,000 between 2000 and 2005 lol... so that is their problem. 

All I am concerned about is the CGT on an unfair 30% that they decided I get on an artificially deflated house price. The £30,000 they put in 2000 was to ensure they got 50% of the Net sale proceeds. Disgusting to be honest.

Jeremy535897

I am fortunate not to have experienced anything like the problems you have described, so I won't pretend to understand how you feel. I can only sympathise. Tax law takes no account of such problems, and HMRC does not sympathise.

I said earlier that, based on the figures you provided, you are unlikely to have a capital gains tax liability, unless you have other capital gains in the same tax year. Is that likely?

"My ex put it into my name without my knowledge" is an allegation of fraud, but I am guessing that you have not spoken to the police about this? My concern for you is that somehow all these transactions will result in a tax liability that you should not have, but an expert would have to review all the paperwork.

I wonder what the reaction of your in-laws would have been if you had gone to the police about the alleged fraud?

tightauldgit

clairebradshaw said:

Thanks for this - my ex was very dodgy over the marriage - we split because I found out debts had been racked up in my and their name. Luckily this has all been cleared and my credit score is returning to normal etc. To me, I can't see how I have made any gain in this - I am in a Negative - it is the ex-inlaws who put in £30,000, bought me out at £61,000 (£91,000 total) and are taking the mortgage over, not my ex. Therefore they stand to gain a property worth a minimum of £252,500 by parting with £91,000. My experience from this divorce is that the Law is neither fair or balanced. There was no protection from my ex-inlaws demanding whatever they wanted and holding out for more and more until they got away with financial murder. The fact that the Tax department doesn't care and just wants its cut (Not withstanding my annual exemption) makes everything just worse. Thanks for the link I will have a look  

The protection from your ex-inlaws demanding more and more until they got away with murder is that you do not have to agree to their demands and can ask the court to make a ruling. It seems somewhat harsh to blame the law for what you agreed to.

With regards CGT the things you list and really neither here nor there. What matters is whether you made a capital gain on the property. If you haven't or only made a small one then you won't have to pay CGT. 

clairebradshaw

Jeremy535897 said:

I am fortunate not to have experienced anything like the problems you have described, so I won't pretend to understand how you feel. I can only sympathise. Tax law takes no account of such problems, and HMRC does not sympathise.

I said earlier that, based on the figures you provided, you are unlikely to have a capital gains tax liability, unless you have other capital gains in the same tax year. Is that likely?

"My ex put it into my name without my knowledge" is an allegation of fraud, but I am guessing that you have not spoken to the police about this? My concern for you is that somehow all these transactions will result in a tax liability that you should not have, but an expert would have to review all the paperwork.

I wonder what the reaction of your in-laws would have been if you had gone to the police about the alleged fraud?

Thank you. Yes the stress of this has me at breaking point. I'm at the point of I dont care any more, but my solicitor wont take instructions from me until I do. Yes, it was fraud, and yes the Police asked if I wanted to push charges - but already my life was in ruins and my children not talking to me for upsetting the relationship and their lives; this would have pushed them away forever. Besides the ex inlaws are multi millionaires. Who knows what they would have done if I had pursued the matter. My safety was at stake. 

clairebradshaw

tightauldgit said:

clairebradshaw said:

Thanks for this - my ex was very dodgy over the marriage - we split because I found out debts had been racked up in my and their name. Luckily this has all been cleared and my credit score is returning to normal etc. To me, I can't see how I have made any gain in this - I am in a Negative - it is the ex-inlaws who put in £30,000, bought me out at £61,000 (£91,000 total) and are taking the mortgage over, not my ex. Therefore they stand to gain a property worth a minimum of £252,500 by parting with £91,000. My experience from this divorce is that the Law is neither fair or balanced. There was no protection from my ex-inlaws demanding whatever they wanted and holding out for more and more until they got away with financial murder. The fact that the Tax department doesn't care and just wants its cut (Not withstanding my annual exemption) makes everything just worse. Thanks for the link I will have a look  

The protection from your ex-inlaws demanding more and more until they got away with murder is that you do not have to agree to their demands and can ask the court to make a ruling. It seems somewhat harsh to blame the law for what you agreed to.

With regards CGT the things you list and really neither here nor there. What matters is whether you made a capital gain on the property. If you haven't or only made a small one then you won't have to pay CGT. 

As above, taking hem to court was not an option. I have limited funds. They are multi millionaires. The law and court system works in favour of those who can afford to continue to pay for a solicitor and not those who cannot. My mental health is at breaking point and after everything I have gone through I simply cannot take any more. The final straw is being told "Because you moved out of the house in 2018, you will have to pay tax on a gain" I moved out for my own safety. Would the tax man have rather I stayed? I have paid enough, financially, personally, mentally and through the loss of my children. How much more can be taken?