capital gains tax - confused !

[zzz]

please could some one shed some light on my tax question ? my husband and i seperated almost 3 years ago and we sold the matrimonial home, and purchased 2 seperate properties. He lives in one and i live in the other with the children. A declaration of trust was entered into holding the property in 50/50 equal shares between us. (on the advice of solicitor) he has paid the mortgage in lieu of any maintenance. I am now in a position to take over the mortgage, and have reached nisi stage in divorce proceedings, however i have been told 2 different stories on cgt. one says there will be a liability and my solicitor says there isnt. my ex is seeking an indemnity on any possible tax bill. House is estimated to be worth 135,000 purchased for 85,000. he has never lived in the property, only myself and the kids. no one ever mentioned cgt when houses were purchased, had no idea untill recently, and feel very confused. if some could please help shed some light i would be most grateful.

[jpcentral]

If your husband transfers his share of the property to you a gain has arisen and, because the property is not his main residence, the gain is taxable. In the case you outlined above, your husband's gain would be £25,000 from which he could deduct his £8,500 annual exemption, leaving a taxable amount of £16,500.

That is assuming that you hold the property as Tenants in Common which is what you imply. Depending on the trust document and (possible) other agreements, this might not be the case. There could, for example, have been a sale contract agreed to at the time of original purchase which might limit or eliminate your husband's gain. This is a complicated area and the full particulars need looking at.

I would have thought that a simpler arrangement, at the time of purchase, would have been for the property to put entirely in your name and your husband granted a charge over the property to protect his interest. Are you sure that this is not what was done?

I would suggest that you ask the solicitor why he thinks there is no possible CGT liability. At least that would give you a starting point without trying to guess at the fine points of a trust and any other agreements made at the time.

If the situation is exactly as outlined and there is a potential CGT liability, you could consider making an agreement with your husband for him to transfer his share of the property to you in stages.

John Perry
Central Business Services
Loughborough
(01509) 416549

We can accept no liability for any information given in this reply. Before acting on anything above you are recommended to take professional advice.

[zzz]

Thank you john for your prompt reply, the house is solely in my husbands name, as i was not in employment due to very young children when we seperated, the deed of trust was to prevent him from being able to sell without my say so, nothing else attached to it. my soliciotor has quoted sections 222(1) and 225, that as i am entitled to occupy the property under the terms of said trust, no liability should arise. Would the solicitors inform the IR or would it be down to my ex. ?

[jpcentral]

I think I've found the right section and it looks as if your solicitor is correct - provided the trust has been drawn up properly. You did say that the property was held 50/50 but never mind.

The solicitors would not normally inform the Inland Revenue. There is no guarantee that the solicitor which prepared the trust would even know if the property was sold. There may be a copy of the trust with the deeds but, so far as I am aware, there would be no requirement on the solicitor to advise the revenue of the trust details.

My advice would be that your husband should write to his tax office explaining the situation and enclosing a copy of the trust. He should ask for specific confirmation that the transaction will not be subject to CGT. By writing he should receive written confirmation and could then rely on that to defend any subsequent claim. And all it costs is the price of a stamp - much easier than arguing and asking solicitors to prepare indemnities.


John Perry
Central Business Services
(01509) 416549

We can accept no liability for any information given in this reply. Before you act on anything above you are recommended to take professional advice.