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Where Taxpayers and Advisers Meet

Divorce-transfer of lump sum and CGT

missqueen3369
Posts:4
Joined:Mon Dec 26, 2016 1:56 pm
Divorce-transfer of lump sum and CGT

Postby missqueen3369 » Mon Dec 26, 2016 2:29 pm

Question: How to minimise CGT on transfer of asset from husband to wife as part of divorce settlement
Facts:
10 year cohabitation (7 years of that married, no children)
Agreed end relationship May 2016, wife physically moved out August 2016 (previous 4 month separation September 2015)
Husband lives in matrimonial home (only asset) which is solely in his name, wife has registered interest in property

In mediation stages only and have had following discussion:
Husband wants to keep matrimonial home - verbally agreed to £75k as reasonable amount to transfer husband to wife
Both would prefer 2 year rule for divorce rather than either admit "bad behavior, etc."--Husband would like to back date separation into last tax year (September 2015-date of first separation) for 2 year rule to end marriage sooner.
Husband does not want to transfer £75k until there is "legally binding documentation" to prevent wife asking for more in future
Wife does not want to pay CGT and husband cannot/will not compensate wife for CGT if payment required.
Wife plans to use majority of £75k to purchase a property (yet to be found) within 6-12 months after transfer of funds.

We are fast approaching end of tax year. Settlement not exactly amicable, so is not easy to discuss. Need facts before next mediation appointment 18th Jan 2017. Are there any other options to minimise CGT besides transfer before end of this tax year? If backdate separation into last tax year, is there any way to minimise CGT? If money to be used for a property, is there a way to transfer only a portion (under CGT threshold) and the remainder placed into a trust for a property, or even paid directly to a seller on behalf of the wife without either paying CGT?

Thanks!

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Divorce-transfer of lump sum and CGT

Postby bd6759 » Tue Dec 27, 2016 10:34 am

I cannot see where any CGT liability might arise. What is it that you think will generate a chrgeable gain?

missqueen3369
Posts:4
Joined:Mon Dec 26, 2016 1:56 pm

Re: Divorce-transfer of lump sum and CGT

Postby missqueen3369 » Tue Dec 27, 2016 4:46 pm

If money not transferred before end of this tax year or if he insists on separation date being September 2015, which places into last tax year, then I will have to pay CGT on £75k unless there is something I am not understanding.

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Divorce-transfer of lump sum and CGT

Postby bd6759 » Tue Dec 27, 2016 6:47 pm

The period in which you lived in the property is exempt, as is the last 18 months of ownership. It does not matter when your separated: if you were living in the house, it is still your residence.
CGT can only arise during a period not covered by exemption, and is calculated as a proportion of the gain accrued over the period of ownership. It is not all or nothing.

missqueen3369
Posts:4
Joined:Mon Dec 26, 2016 1:56 pm

Re: Divorce-transfer of lump sum and CGT

Postby missqueen3369 » Wed Dec 28, 2016 1:49 pm

Thank you--this is related to private residence relief or main residence relief laws right? This is the part that I didn't quite understand but having read your reply and looked a bit further into it, I think I see how this works.

Another couple of questions--does it make any difference at all that the house is solely "owned" by my husband? I.e. my name not on any mortgage or deed paperwork. Do I need to complete any particular forms etc. for HMRC to take advantage of this exemption? Another note, I am self-employed so will complete my annual self assessment. Thanks again for your time in providing this clarification.

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Divorce-transfer of lump sum and CGT

Postby bd6759 » Wed Dec 28, 2016 4:56 pm

CGT is paid by those with a beneficial interest rather than a legal interest. You said on your first post that you hold an interest, and this payment is to give up that interest.

A disposal of a residence that wholly qualifies for residence relief is exempt from CGT and need not be declared on your tax return. As long as you dispose of your interest within 18 months of that property last being your residence, it will be wholly exemot.

missqueen3369
Posts:4
Joined:Mon Dec 26, 2016 1:56 pm

Re: Divorce-transfer of lump sum and CGT

Postby missqueen3369 » Thu Dec 29, 2016 2:37 pm

Thanks very much--you have been extremely helpful and set my mind at ease. Regards Holly


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