Sale of former matrimonial home - CGT payable?

zzzLazyDaisy

I would be grateful if someone could give me some information or point me in the right direction.

I had an amicable split from my Ex in April 2002.

I agreed that he could stay in the house until it was sold, assuming that would be within 3 years. In fact that hasn't happened. There were delays putting the house up for sale, and it has now been on the market for over 18 months with no purchaser in sight.

The house is still in joint names, but I bought my own house in Feb 2003 with the aid of a mortgage, pending the sale of the matrimonial home.

So, is CGT payable on my share of the house, as it is now more than three years since it was my main residence? If so, would it be better to transfer the house into his name before it is sold, as it is still his main residence (we are still married, and I trust him to pay my share to me on sale).

Thanks for your thoughts

Pinkleylandii

Hi

The capital gains exemption for assets transferred between husband and wife only apply in a tax year when a married couple are living together. For transfers in later tax years, capital gains tax is chargeable in the normal way and this must be remembered when considering the matrimonial home following separation. However see exemptions below.

For capital gains tax purposes, when a couple separate, the family home will cease to be the main residence of the spouse who leaves it. His or her share of any calculated gain on a subsequent sale will therefore be chargeable to the extent that it relates to the period of non-residence, subject to any available exemptions or reliefs. The last 3 years of ownership as you know, always count as a period of residence, even if a new qualifying residence has been acquired. If the property is disposed of more than 3 years after the spouse leaves it, part of the gain will be assessable, but only in the proportion that the excess period over the 3 years bears to the total period of ownership (or 31 March 1982 if later). Even then, the chargeable gain may be covered by the annual CGT exemption which is currently £8,500.

There is also extra-statutory concession D6 which effectively extends the three years in such circumstances to an indefinite period, by providing that for relief purposes, the former home can be regarded "as continuing to be a residence of the transferring partner from the date his or her occupation ceases until the date of transfer, provided that it has throughout this period been the other partner’s only or main residence."

Unfortunately, the relief is only available for a single property, so that if the spouse leaving the matrimonial home acquires another main residence, and elects for that property to attract relief, their interest in the former matrimonial home will then no longer attract the relief.

I would suggest that you first do some sums to establish what your likely capital gains tax exposure would be if you transferred your half share of the matrimonial home to your ex, which would be based on the current open market value, as he is classed as a 'connected person' for CGT purposes. If the gain does not exceed £8,500 and you are happy to transfer it, then do it.(Obviously if you have disposed of other chargeable assets during the tax year, then the £8,500 exemption may be diminished).
The benefit of this transfer would be the fact that you could claim full Principal Private Residence relief to date on your current home.

If you want any help with the calculations, let me know.

John

zzzLazyDaisy

Pinkleylandii wrote:

There is also extra-statutory concession D6 which effectively extends the three years in such circumstances to an indefinite period, by providing that for relief purposes, the former home can be regarded "as continuing to be a residence of the transferring partner from the date his or her occupation ceases until the date of transfer, provided that it has throughout this period been the other partner’s only or main residence."

John

Hello John

Thank you so much for this very helful reply.

Just to be sure I understand the situation -

My Ex is still living in the house, it is still his main residence and has been throughout the time we were together and since the split. So does this mean that I won't be hit for CGT when we eventually sell it, as long as he continues to live there?

Also, with regard to your later comment - if we sell the house in joint names at some point in the future, does this mean that the house I now own and live in as my principal residence could attract CGT for the period between the date I acquired it and the date we sell the matrimonial home?

I may come back to you for help with the calculations. Once I've got my head round the basics.

Thank you so much, I am so grateful for this :beer:

Pinkleylandii

Hi

Correct, no CGT on the matrimonial home but note that the D6 concession only applies if you have not elected for your new home to be your new principal private residence in the meantime.

Yes, you could have CGT to pay on your new home as you can't claim PPR relief on the two properties simultaneously.

Cheers

John

zzzLazyDaisy

Ah! Could be more complicated tha first thought, then.

Last year I sold a flat that I'd bought as a stop-gap till we got sorted out. It was my main residence and I sold it as that, so no CGT paid (I made a profit even though I'd only had it a year, coz prices went silly, so I would have had to pay CGT).

BUT I assumed, at that time, that was okay, coz I was still within the three year period for selling our other house.

But, here's another thing - after the split (April 2002) I stayed with friends and then later we got back together (Nov 2002) and then split up again (Feb 2003), that's when I bought the flat. So does the 3 year period run from when I left the first time, or the second? In which case am I okay till Feb 2006?

Sorry, I know it is a bit of a mess - I wish I'd insisted on selling the house straight away, but he was so upset and I felt so guilty.......... Doh!!

Thanks again, I really am very grateful

Pinkleylandii

Hi

As you have had a PPR exemption on another property since leaving the marital home, you will not be eligible to the D6 concession. However based on the information you have now given me, I don't think you currently have a CGT problem anyway on your share of the marital home, although this may change if it is transferred after Feb 2006 as you have said.

Currently, if you sold your half share in the marital home now, the period from say 1 August 2002 to the date of sale ( ie last 36 months of ownership) would be classed as deemed occupation by you and would be exempt from CGT. On the face of it, the period April 2002 when you originally left the marital home to end of July 2002 will not be covered by this relief. However, the Inland Revenue allow you to claim temporary periods of absence as PPR where the property was your only or main residence at some time before and after the period of absence providing no other residence qualified for relief at that time. My understanding is that the only thing which could scupper your claim were if you owned a property or leased a property elsewhere during that period. As you were living with friends, I would imagine that you would not be classed as a tenant and therefore you should qualify for the temporary absence relief.

One final good bit of news is as you are not eligible to the D6 concession, your new home will qualify for PPR relief.

Cheers

John

zzzLazyDaisy

Thank you for this.

I had come to the same conclusion myself, based on your earlier very helpful advice.

SOoooooo..... I have to hope we sell the house before February 2006....

Just one more thing. If it doesn't sell, am I right in thinking that, for CGT purposes, the capital gain each year is calculated by taking the profit since purchase and dividing by the number of years of ownership?

This is important because the house was valued when I left. It has fallen considerably in value since then, but I am assuming the CGT is based on a nominal year's profit calculated over the whole ownership of the property and not an actual rise in value in any given year?

Also am I right that the whole 'gain' over the final period gets only the final year's CGT allowance, no matter how many years' gains we are talking about?

Thank you so much for this, I can't tell you how helpful this has been.

Pinkleylandii

Hi

You are right in your understanding that the gain is calculated from the original date of purchase, not when you left the matrimonial home.

The Revenue look at say the months you actually lived in the property, the months that you can claim tempory absence and the last 36 months of ownership and this is the compared to to the total period of ownership. This proportion is exempt from CGT with the remainder being chargeable. In your case, all of your gain is currently coverd by these exemptions but this will change from Feb 2006.

However, as well as being able to claim an annual CGT exemption against any gain on the transfer of your share of the property (providing there have been no other disposals of chargeable assets in that particular tax year), any gain could firstly be reduced by non - business asset taper relief before the annual exemption is applied. This relief is a 5% reduction in the gain for every year you held the property but does not 'kick in' until the property is held by you for 3 years. At this 3 year point you get a 5% reduction and then you get an extra 5% reduction for every year the property is held after that. The maximium relief that can be claimed overall in any transaction with a non - business asset is 40%. There is also the possibility of a bonus year if the asset was held at 16 March 1998 but this is included within the maximum 40% relief.

If you can give me the date the property was originally purchased, I will be able to tell you what your taper relief entitlement is to date.

Cheers

John

zzzLazyDaisy

The house was purchased in 1993.

Have PM'd you with actual figures.

Thanks again!!!