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Where Taxpayers and Advisers Meet

CGT matrimonial home Divorce

David Lyon
Posts: 17
Joined: Wed Dec 17, 2014 10:59 am

CGT matrimonial home Divorce

Postby David Lyon » Tue Jan 01, 2019 6:45 pm

I believe there is a potential problem in this case. My client and husband have lived for many years in the same property jointly owned. The husband decided to build a new house for them within the allowable garden area. However this has taken him more than 15 years so far. Unfortunately, during that time the marriage has broken down and they are divorced. He is still building the property in question as he wants his ex-wife to live there. My worry is that as he himself has never actually resided in the new property, CGT implications could now arise if the ex-wife was to buy out his share. Also, there could well be IHT implications. Has anyone any thoughts on this please?

SteLacca
Posts: 426
Joined: Fri Aug 07, 2015 2:17 pm

Re: CGT matrimonial home Divorce

Postby SteLacca » Thu Jan 03, 2019 9:48 am

Are they still living together at the moment?

pawncob
Posts: 4192
Joined: Wed Aug 06, 2008 4:06 pm
Location: West Sussex

Re: CGT matrimonial home Divorce

Postby pawncob » Thu Jan 03, 2019 12:13 pm

As they are divorced, they're just two individuals, so no CGT exemptions apply.
Is he going to sell her the new house or gift it?
What will happen to the old house?
With a pinch of salt take what I say, but don't exceed your RDA

David Lyon
Posts: 17
Joined: Wed Dec 17, 2014 10:59 am

Re: CGT matrimonial home Divorce

Postby David Lyon » Thu Jan 03, 2019 7:01 pm

Thank you for your replies SteLacca and pawncob. This is some more background if it helps:

1. They lived in an old bungalow jointly owned for many years. They needed more space so they pulled down the bungalow and moved into the garage which was converted to accommodate them while the new house was being built on the plot where the bungalow was. The husband (now ex-husband) was a bit OCD and tried to build most of the house himself with the odd bit of help. This has now gone on for about 15 years though should soon be ready for the wife to move in.

They both lived in the converted garage until the marriage broke up. The garage is joined to the new house.

2. Apparently, the ex-husband has now taken his name off the deeds and to all intents and purposes has gifted his half share to his ex-wife as part of a divorce settlement between the two of them for which he has received £200000

3. I am worried that HMRC may take the view that as he did not live in the new house itself, he may not qualify for any PPR on his half share or relief under S225B. He lives with his new wife in her home and does not have a share in that. However, I am wondering if we could argue that he had actually lived in the new home in a way as the converted garage is part of the new home and he lived there as his PPR until he moved out on the marriage break-up.

pawncob
Posts: 4192
Joined: Wed Aug 06, 2008 4:06 pm
Location: West Sussex

Re: CGT matrimonial home Divorce

Postby pawncob » Fri Jan 04, 2019 12:26 pm

Notwithstanding the divorce, the husband seems to have occupied the house (and /or garage) continuously, so he's entitled to PPR relief up to the date he left. I think the house/garage situation is analogous to splitting a house to flats and then back to a house, so it qualifies.
He then sold his share of the house to his ex as part of the settlement, so there's a gain subject to reliefs.
With a pinch of salt take what I say, but don't exceed your RDA

David Lyon
Posts: 17
Joined: Wed Dec 17, 2014 10:59 am

Re: CGT matrimonial home Divorce

Postby David Lyon » Fri Jan 04, 2019 1:30 pm

Thank you for your thoughts on this. If we can argue that the husband had lived there for a while and as long as he does not have another property designated as a PPR, we should presumably be able to ask for full CGT relief under S225B as this transfer of his share was part of a divorce settlement.

SteLacca
Posts: 426
Joined: Fri Aug 07, 2015 2:17 pm

Re: CGT matrimonial home Divorce

Postby SteLacca » Fri Jan 04, 2019 4:29 pm

The dates of each event are a consideration, but in principal I'd agree that a PRR claim is available, including the final 18 months of ownership if applicable. Whether there is still a gain subject to CGT will depend, as I said, on dates and the amount of any apportioned gain as appropriate.

David Lyon
Posts: 17
Joined: Wed Dec 17, 2014 10:59 am

Re: CGT matrimonial home Divorce

Postby David Lyon » Fri Jan 04, 2019 7:25 pm

Thank you SteLacca for your reply. I think we may still have a case for an election under S225B to be put forward to HMRC.


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