Help Capital gains tax avoidance !

mrsides

Hi Guys

Do I need some advice right now !!!

Basically I am going through a very though time at the moment, due to my wife up sticks and deciding she no longer wants to be married.

The problem I have is we jointly own a rental property which we have never lived in, we have owned it for five years. It has been rented during this time but we have never been registered as living at the property.

Due to the financial situation and settlement which I am paying the solicitors to solve, how the hell do I avoid capital gains tax on the property, as it is looking like my wife is playing it so I end up with the rental property as part of the settlement, but due to the area and size it is unsuitable for myself and the children to live in, due to schools etc

How can I avoid the tax ? I am staying with relatives as at present I am still paying every bill connected to the family home, and the rental property which is standing empty, as my wife has refused to it being relt.

Please any advice would be most welcome.

Thanks

Murdina

The first point to understand is that the exemption between husbands and wives only applies for the tax year in which you separate. After that, you are treated as connected persons (which means that firstly - no spouse exemption for transfers and secondly - any transfer must be valued at market value for CGT) up until the decree nisi.

If your wife is to transfer her half share to you, then she will be liable to CGT on that transfer unless you separated in the current tax year and transfer before 6 April. Her solicitors if they are on the ball may press for this. After that, she'll pay CGT on her half at the value at the time.
Either way, you get what was her half for CGT purposes at the current value - so if you are going to sell it asap there may well be no gain on that half and even a loss.

You will have to pay CGT on your half when you sell. It's no doubt too late now to think of a sale before 6/4/08 when the CGT rules change. In any event, you are probably better off selling after that date. You will be taxed on the difference between purchase and sale prices, less half of all the costs of purchase , all the costs of sale and half of any improvements e.g. new kitchen. Tax is at 18% after the annual allowance.

Work out what the tax will be now. I think you can have that reflected in the divorce settlement. Above all, please do talk to your solicitor about all this as they deal with these situations all the time and can hopefully ensure things are done to your best advantage.

If you have never lived there and do not want to move in, then you are really stuck with paying the tax.

Hope that gives you some idea of the things to think about and discuss. You also need to consider the position on the family home. That may not be free of CGT issues.

mrsides

Thanks for the information.

If I were to register myself on the gas & electric and council tax, would that basically show I live at the property rather than physically being there ? I am stretched to breaking point with finances so I cant physically afford to move in.

BUT if things were different and I could move in, how long would I need to live in the property inorder to avoid capital gains tax ?

Thanks

Mark

dunstonh

If I were to register myself on the gas & electric and council tax, would that basically show I live at the property rather than physically being there ?

You mean that you are asking if it is possible to commit fraud and will you get away with it?

mrsides

Thanks Dunstonh wonderful constructive comment, I am asking if I register with Council tax and the other utilities, would this suffice to me living there to avoid tax, as to be honest I am at breaking point financially therefore I cant afford to physically move in. I AM NOT ASKING HOW TO COMIMT FRAUD !

Comments like that are best kept to yourself, rather than trying to be clever, I put up a general question and have no idea of the implications of tax, therefore needed advice rather than a snide comment.

Thanks

dunstonh

Sorry, you are asking about committing fraud. You may try and wrap it up by calling it something else but what you saying would be tax fraud.

Murdina

mrsides you have got to live there as a matter of fact. How long is a moot point and one which has often been raised on this forum, with dissent from others on my view which is that it is QUALITY not QUANTITY and that as a result even a short period may qualify.
I realise money is tight but do speak to your solicitor about this. If you get this wrong and HMRC come after you for tax, interest and penalties in a few years, you may end up bankrupt or with a charge on any house you own. And penalties are greatly increased for fraud (and indeed fraud can lead to a criminal prosecution).