Capital gains when ex-partner buying my share of property

jojow · 17 November 2018 at 7:14PM

This is a complicated one and I will seek professional advice on Monday but would appreciate people’s views in the meantime.

My ex-partner (not married) and I separated 14 years ago but still own a property together as tenants in common with equal shares. Now our son is 18 the house needs to be sold and my ex-partner wishes to buy me out, which would be great. The issue is that she cannot raise a mortgage to give me the full 50% share of the equity and has made me a lower offer (lower by £20k). Before I consider this I need to understand the tax position- I am worried that my capital gains liability would be calculated on 50% of the profit based on the current market value rather than on the amount she is actually giving me, therefore I could be accepting a lower share of the profits AND paying more tax.

Put simply, my share of the equity is £80k but she is offering £60k- do I pay CGT based on the £60k I am getting or the £80k which is half the profit?

Alternatively she could give me the balance of the equity in the future when she dies/sells the property. Again, would this impact the CGT liability?

jimmo · 18 November 2018 at 1:02AM

It is arguable whether the market value rule will apply or not in your circumstances. Effectively the question will be whether you could have sold for more on the open market.
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14541
What you are looking to sell is your half share interest in what seems to be a property where the other half share owner is in occupation so effectively it is a property with a sitting tenant paying no rent. I am no valuation expert but tend to think you would struggle to find a buyer on the open market so maybe £60k is the best you could achieve.
Possibly far more important for tax purposes, you have linked your son's 18th birthday to a "need" to sell the house. Why? If there was some sort of agreement, preferably in writing, that your ex and your son could occupy the property until the son reached his 18th birthday it is very likely that one or both of them have been living in the property as their main or only residence as beneficiaries of a trust and any gain you realise will be tax free.
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65400p

jojow · 18 November 2018 at 3:43PM

Thanks very much for the reply.

Yes, when my partner and I separated 13 years ago there was a declaration of trust stating that they could live there and I would pay the mortgage until one of the triggering events occurred, the first of which has been my son turning 18. He actually turned 18 almost a year ago but I didn’t want to disrupt him with a house move in the middle of his A levels. My ex does own half the house and her name is on the mortgage even though I make the payments.

I’d rather her buy me out for many reasons, even if it means me missing out financially, but I don’t want to miss out on £20k of equity AND have a big tax bill.

I will have a read of your link and make sure I give a copy of the trust to my accountant tomorrow.

Capital gains when ex-partner buying my share of property

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free