Capital Gains - Plea for Help

ThisCannottBeRight

Hi all. Please can anyone confirm my situation? I have received an email from the accountant I asked to help today and just feels terribly wrong and the figures way out of reach in terms of payment. 

2003 Feb - bought house with then husband for £305,000 

2008 Dec - We separated, I left and moved into privately rented accommodation - Court advised it didn't need to be sold so he had somewhere for the kids to stay when they were with him as per Residency Schedule

2010 Oct - We divorced - I continue to rent - don't earn enough for 2 mortgages, he was unemployed. Interest-only mortgage paid for by DWP

2021 June - he agrees to sell - I'm STILL renting. Financial Consent Order from Court states I will get £25,000 he will get approx £40,000 based on expected Sale Price and after his secured debts - (obtained after I left) have been paid.I am satisfied with this after so long and wanting to be no-longer tied to him financially. 

2022 Dec - House sells for £590,000. (£90k more than anticipated the year before) Somehow secured debts "disappeared" He receives £161,000. I receive £25,000 - He privately rents, I am still privately renting 

2024 - I receive a letter from HMRC saying I potentially should have paid Capital Gains tax and now owe interest and a fine will be added as CGT return was not submitted within 60 days (I honestly had no idea I needed to, conveying solicitor didn't mention it during sale) - waited 14 years to receive some equity, financially crippled by his debts being linked to me via mortgage. 

I still have not bought another property, continue to rent.

I complete HMRC CGT calculator online which says nothing due. Begin to complete the Return online but get concerned it's more complex and seek support from local accountant.  

2025 Jan - Accountant advises my liability is on £70,969, after Private Residence Relief and CG Allowance because I was technically still 50% owner  and it wasn't my main home. Ex owes nothing because it was his. 

This feels drastically unfair, when I received £25,000. Do I really have to pay 18% tax on circa £45,000 I didn't receive? 

Any information very desperately appreciated. Feeling physically sick   

Nomunnofun1

ThisCannottBeRight said:

Hi all. Please can anyone confirm my situation? I have received an email from the accountant I asked to help today and just feels terribly wrong and the figures way out of reach in terms of payment. 

2003 Feb - bought house with then husband for £305,000 

2008 Dec - We separated, I left and moved into privately rented accommodation - Court advised it didn't need to be sold so he had somewhere for the kids to stay when they were with him as per Residency Schedule

2010 Oct - We divorced - I continue to rent - don't earn enough for 2 mortgages, he was unemployed. Interest-only mortgage paid for by DWP

2021 June - he agrees to sell - I'm STILL renting. Financial Consent Order from Court states I will get £25,000 he will get approx £40,000 based on expected Sale Price and after his secured debts - (obtained after I left) have been paid.I am satisfied with this after so long and wanting to be no-longer tied to him financially. 

2022 Dec - House sells for £590,000. (£90k more than anticipated the year before) Somehow secured debts "disappeared" He receives £161,000. I receive £25,000 - He privately rents, I am still privately renting 

2024 - I receive a letter from HMRC saying I potentially should have paid Capital Gains tax and now owe interest and a fine will be added as CGT return was not submitted within 60 days (I honestly had no idea I needed to, conveying solicitor didn't mention it during sale) - waited 14 years to receive some equity, financially crippled by his debts being linked to me via mortgage. 

I still have not bought another property, continue to rent.

I complete HMRC CGT calculator online which says nothing due. Begin to complete the Return online but get concerned it's more complex and seek support from local accountant.  

2025 Jan - Accountant advises my liability is on £70,969, after Private Residence Relief and CG Allowance because I was technically still 50% owner  and it wasn't my main home. Ex owes nothing because it was his. 

This feels drastically unfair, when I received £25,000. Do I really have to pay 18% tax on circa £45,000 I didn't receive? 

Any information very desperately appreciated. Feeling physically sick   

I haven’t checked the figures but what the accountant has said is correct. I have nothing but sympathy for you. 

I have come across this many many times - divorce solicitors and barristers rarely look at the tax position of the parties. 

My one question is how he was able to obtain secured loans on a property in joint names. 

Bookworm105

you can choose to treat the period after you ceased to reside in the home as if it had been you only or main residence where:

• the sale is made under a formal divorce or separation agreement or court order
• in between you ceasing to reside in the home and the sale to someone other than your former spouse or civil partner, the property continues to be the only or main residence of your former spouse or civil partner
• you have not nominated another property to be treated as your only or main residence for the period between your moving out and the disposal of your former matrimonial or civil partnership home

However, if you do claim relief for the period between moving out and the sale, you will not be entitled to Private Residence Relief on any other home for that period, so this may not be the best choice in every case.

HS281 Capital Gains Tax civil partners and spouses (2024) - GOV.UK

Nomunnofun1

Bookworm105 said:

you can choose to treat the period after you ceased to reside in the home as if it had been you only or main residence where:

• the sale is made under a formal divorce or separation agreement or court order
• in between you ceasing to reside in the home and the sale to someone other than your former spouse or civil partner, the property continues to be the only or main residence of your former spouse or civil partner
• you have not nominated another property to be treated as your only or main residence for the period between your moving out and the disposal of your former matrimonial or civil partnership home

However, if you do claim relief for the period between moving out and the sale, you will not be entitled to Private Residence Relief on any other home for that period, so this may not be the best choice in every case.

HS281 Capital Gains Tax civil partners and spouses (2024) - GOV.UK

You found this a lot quicker than I did - could be transformative IF the first statement applies in this case. 

Bookworm105

Nomunnofun1 said:

You found this a lot quicker than I did - could be transformative IF the first statement applies in this case. 

yes, I think we cannot say the accountant is correct without knowing specific details of the divorce. CGT and divorce can be a specialist area that many accountants and divorce lawyers are not up to speed on.
Implications of "mesher orders" for example given that OP mentions children and the fact she has rented her new home not owned it 

I am also going to reinstate my previously deleted comment that CGT is based on beneficial ownership, not legal ownership, so if the settlement was for £25k from the house sale then she can't be taxed on her legal ownership share (50%?)

ThisCannottBeRight

Nomunnofun1 said:

ThisCannottBeRight said:

Hi all. Please can anyone confirm my situation? I have received an email from the accountant I asked to help today and just feels terribly wrong and the figures way out of reach in terms of payment. 

2003 Feb - bought house with then husband for £305,000 

2008 Dec - We separated, I left and moved into privately rented accommodation - Court advised it didn't need to be sold so he had somewhere for the kids to stay when they were with him as per Residency Schedule

2010 Oct - We divorced - I continue to rent - don't earn enough for 2 mortgages, he was unemployed. Interest-only mortgage paid for by DWP

2021 June - he agrees to sell - I'm STILL renting. Financial Consent Order from Court states I will get £25,000 he will get approx £40,000 based on expected Sale Price and after his secured debts - (obtained after I left) have been paid.I am satisfied with this after so long and wanting to be no-longer tied to him financially. 

2022 Dec - House sells for £590,000. (£90k more than anticipated the year before) Somehow secured debts "disappeared" He receives £161,000. I receive £25,000 - He privately rents, I am still privately renting 

2024 - I receive a letter from HMRC saying I potentially should have paid Capital Gains tax and now owe interest and a fine will be added as CGT return was not submitted within 60 days (I honestly had no idea I needed to, conveying solicitor didn't mention it during sale) - waited 14 years to receive some equity, financially crippled by his debts being linked to me via mortgage. 

I still have not bought another property, continue to rent.

I complete HMRC CGT calculator online which says nothing due. Begin to complete the Return online but get concerned it's more complex and seek support from local accountant.  

2025 Jan - Accountant advises my liability is on £70,969, after Private Residence Relief and CG Allowance because I was technically still 50% owner  and it wasn't my main home. Ex owes nothing because it was his. 

This feels drastically unfair, when I received £25,000. Do I really have to pay 18% tax on circa £45,000 I didn't receive? 

Any information very desperately appreciated. Feeling physically sick   

I haven’t checked the figures but what the accountant has said is correct. I have nothing but sympathy for you. 

I have come across this many many times - divorce solicitors and barristers rarely look at the tax position of the parties. 

My one question is how he was able to obtain secured loans on a property in joint names. 

Thank you so much for your reply..... I believe they were personal debts that he defaulted on and were then secured on the property by the banks/solicitors he borrowed from/owed. Accountant suggests writing to HMRC with full explanation and asking for a review. I feel I've got nothing to lose by doing that but from what you say, it could be futile if you've seen this before. I feel extremely annoyed that it was never mentioned at the time of sale either, at least I'd not have a fine and interest to pay on top and I would have begged the ex to contribute from his rather large share. While extremely unrealistic, I would have tried. Thank you again, much appreciated

TheGreenFrog

Bookworm105 said:

Nomunnofun1 said:

You found this a lot quicker than I did - could be transformative IF the first statement applies in this case. 

yes, I think we cannot say the accountant is correct without knowing specific details of the divorce. CGT and divorce can be a specialist area that many accountants and divorce lawyers are not up to speed on.
Implications of "mesher orders" for example given that OP mentions children and the fact she has rented her new home not owned it 

I am also going to reinstate my previously deleted comment that CGT is based on beneficial ownership, not legal ownership, so if the settlement was for £25k from the house sale then she can't be taxed on her legal ownership share (50%?)

There are strict requirements as to form of any transfer of ownership (including beneficial) in land.  Just because OP receives only £25k out of £181k of the post mortgage proceeds does not mean that such a transfer has occurred.  However, given the rules on sales following divorce/separation if I were OP I would want to check that the accountant understands the rules, has reviewed the relevant divorce/separartion orders and consents and has given a coherent explanation for their conclusion that CGT is due - failing that I would find an accountant who knows what they are doing before throwing myself to the mercy of HMRC.

Nomunnofun1

I don’t understand why exes share entitlement increases from £40k to £161k between June 2021 and December 2022. 

Interesting to read the AR agreement on this. 

Bookworm105

Nomunnofun1 said:

I don’t understand why exes share entitlement increases from £40k to £161k between June 2021 and December 2022. 

Interesting to read the AR agreement on this. 

yes, one of the reasons I do not think "we" can judge if the accountant is correct or not as there appears to be details we are not aware of 

ThisCannottBeRight

Nomunnofun1 said:

I don’t understand why exes share entitlement increases from £40k to £161k between June 2021 and December 2022. 

Interesting to read the AR agreement on this. 

When the Consent Order was made dictating I would walk away with £25k cleared funds and he receive the rest, it was due to him presenting a list of debts and land registry documents showing he owed several tens of thousands to various organisations. Banks, solicitors, etc. Presumed sale price at that time was circa £495K leaving approx £65K once all debts including mortgage were paid. 
When house actually sold late the following year, buyers paid £590,000 and he had somehow managed to remove the debts from the title. I had no idea of this until solicitors sent me the completion statement..... 
Biggest error was not insisting the Court calculated a percentage to come to me, rather than a fixed amount. Hindsight is a wonderful thing. I've still no idea how he cleared/removed the debts, he remains unemployed. 

Bookworm105

ThisCannottBeRight said: Biggest error was not insisting the Court calculated a percentage to come to me, rather than a fixed amount. 

and that is why I remain unconvinced the accountant has calculated it correctly and thus echo the comment below. I accept that a court award in respect of how to split the money of a marriage does not necessarily impact the underlying ownership split of any assets in the marriage, but on the info presented it does seem that OP is being taxed on a gain amount they have never made.

 

TheGreenFrog said:

However, given the rules on sales following divorce/separation if I were OP I would want to check that the accountant understands the rules, has reviewed the relevant divorce/separation orders and consents and has given a coherent explanation for their conclusion that CGT is due - failing that I would find an accountant who knows what they are doing before throwing myself to the mercy of HMRC.

CG65330 - Private residence relief: separation, divorce or dissolution of civil partnership: jurisdiction of the courts - HMRC internal manual - GOV.UK