CGT on item from divorce

[DJL 123]

Hi, I hope you can help me.

My then husband bought an antique quite a few years ago. I was given this antique during the settlement of our divorce. For my SA, do I pay gains from when I received it at the end of the divorce?? Or from when he bought it back during our marriage?

Any help will be greatly appreciated.

[mullet]

It depends. CGT issues on assets transfered before/during/after divorce can be complicated. In broad terms:

If the asset was transferred in a tax year in which you were married and living together, then it was transferred at an amount of consideration which produces neither gain nor loss for the transferror. In practice this is the acquisition consideration plus acquisition costs plus any allowable enhancement expenditure, which becomes your acquisition consideration. (The Taxes Acts deem married (or civil partnered) persons to be living together unless they are separated in such circumstances that the separation is likely to be permanent.)

If the asset was transferred in a tax year when you were not living together but still technically married, then it was transferred at market value since you would still have been "connected persons" for CGT purposes.

If the asset was transferred after decree absolute was granted, then we would usually look at any amount of consideration to decide whether or not the transaction was at "arm's length". But this is simple in your case since it was "given" - again it would have been transferred at market value.

[maths]

CGT only payable as and when you sell the item.

The "cost" to you is likely to be market value at the date it was given to you unless it was given to you whilst you were still married and living together.

[DJL 123]

Thanks for your responses. I spoke to HMRC today a d they said I have to pay capital gains from when my ex husband purchased the chattel. As we were in the marriage together? Is this right? Surely this could lead to major issues upon divorce for many people.

This would now leave me with the issue of the acquisition date and cost... He did it way back and I have no evidence or even an idea! Plus we no longer have contact. The chattel is an antique item that was sold.

[wamstax]

Hi there I wouldn't believe what you were told over the phone unless HMRC put it in writing and even then I would get it checked out.
Basically if your divorce took place outwith the year of your separation then the asset would not have been transferred at a no gain no loss value based on when your EX-husband acquired it.

Please see the following link
http://www.hmrc.gov.uk/cgt/intro/gifts-inherit-divorce.htm#3

Transfers in the tax year of separationIf you transfer an asset to your husband, wife or civil partner in the year of separation, the same rules apply as for gifts. See the section above 'Gifts to your husband, wife or civil partner'

The donor doesn't have to pay Capital Gains Tax if both of the following apply:
•you've lived together for at least part of that tax year
•the gift isn't ‘trading stock’ (trading goods bought for resale)
and the donne pays capital gains tax based on the donor's acquisition cost when it is ultimately sold.

Transfers in the tax year after you’ve separatedSpecial rules apply if you the donor - your ex-husband transfer an asset to your ...... wife or civil partner in the tax year after you’ve separated. The donor /Husband has to work out the capital gain or loss if all of the following apply:

•you transfer any asset other than your main residence
•you've been permanently separated for the whole of the tax year
•you're not divorced or your civil partnership hasn’t been dissolved

and then you have to pay CGT on your disposal deducting the value at the date of the husbands disposal.

[wamstax]

However I also note that you mention that the asset was a chattel and if your sale proceeds were less than £6,000 then of course it would be exempt from CGT in your hands

[mullet]

And if it was sold for between £6,000 and £14,999 then marginal relief needs to be considered (which sets the maximum gain arising from the disposal).

Please explain exactly when it was acquired, the date of permanent separation, the date of divorce, what was sold and how much for.

If you rang the HMRC helpline then you did not speak to a CG expert. Don't worry for now, but do provide the additional information and you should get a good answer along with one or two concurring.

[DJL 123]

Thanks again for all your help with this.

My husband bought the item on reversion for £25500 in approx 1984. This is what he told me it was bought for, and said as it was a job lot it's actual worth was £50000. I have no receipts or literature to prove this either?

The item was sold on 29th December 2010 for £78000. The majority of this went direct to solicitor fees from the divorce.

Permanent separation commenced from 24 December 2006.

The item became mine at the end of the divorce, 25 April 2010.
Decree Nici was given a month after due to a few complications.

Very confused and running out of time!

[mullet]

On the basis of the information provided you acquired ownership of this asset during 2010-11, many years after you became permanently separated ... so you acquired it at market value. It was acquired in April 2010 and sold in December 2010, so it is even possible that any rise in market value will be covered by your annual exempt amount (if not otherwise used). Please state the nature of the asset (unless it is so rare or unique that this information would reveal your identity) and think about whether it would have increased in value during your period of ownership.

[wamstax]

Of course into the bargain here we would have the husband being liable to CGt on the basis of the increase of MV at 2010 over original COST. A recipe for disaster if as suggested the divorce was difficult with large fees as inevitably when you disclose the disposal to HMRC and tick the box to say that your computation includes a market valuation they will have to liaise with your husbands tax office to agree values .