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Where Taxpayers and Advisers Meet

Naunce of CGT on property during a divorce/separation

Wayfarer1
Posts: 3
Joined: Mon Feb 11, 2019 7:39 pm

Naunce of CGT on property during a divorce/separation

Postby Wayfarer1 » Mon Feb 11, 2019 7:43 pm

I've been trying to understand CGT, if anyone could give me some pointers this I'd really appreciate it:

Person A and B are married and each have 50% of a property (a buy to let that was never the main residence). If they divorce and A disposes of their 50% to B, then they will not be liable for CGT or Stamp Duty.

However, if they divorce and in the subsequent tax year, A disposes of their 50% to B, then A will be liable for CGT on the gain of their 50% and B will be liable for Stamp Duty on the 50% they are purchasing.


Two specific issues I am trying to understand:

1. Under these circumstances, would a subsequent sale by B, result in the 'purchase price' for the calculation of CGT becoming 'updated' to the market value when A disposed 50% to B? Obviously, if that is the case, then it could be advantageous to opt to pay CGT and Stamp Duty on 50% in order to 'reset' the purchase price to a later market value.

2. Would a subsequent sale by B, have an 'old' 50% capital gain that would be taxable in addition to the 'new' gain since becoming the full owner? If point 1 is true, then it would result in A paying a 50% gain and the other gain 'disappearing'.


I am sure that I am seriously misunderstanding something - what is it?

maths
Posts: 7539
Joined: Wed Aug 06, 2008 3:25 pm

Re: Naunce of CGT on property during a divorce/separation

Postby maths » Tue Feb 12, 2019 3:11 pm

A CGT charge arises if the disposal occurs after the tax year of separation (ie couple no longer living together).

Wayfarer1
Posts: 3
Joined: Mon Feb 11, 2019 7:39 pm

Re: Naunce of CGT on property during a divorce/separation

Postby Wayfarer1 » Tue Feb 12, 2019 6:07 pm

A CGT charge arises if the disposal occurs after the tax year of separation (ie couple no longer living together).
Yes. But if the property was then sold later on, would the purchase value be when the couple originally bought the property, or would it be 'reset' to the date of the transfer of 50% from one to the other?

AGoodman
Posts: 805
Joined: Fri May 16, 2014 3:47 pm

Re: Naunce of CGT on property during a divorce/separation

Postby AGoodman » Tue Feb 12, 2019 7:33 pm

If the transfer took place when relief did not apply (so there was a disposal at market value), the half received in the transfer would be rebased to the price paid (or market value if transferred at an undervalue).

On a later sale by B, their acquisition value would be 50% of the original purchase price (for the whole) plus the price paid (or deemed price paid) for the second 50%.

Wayfarer1
Posts: 3
Joined: Mon Feb 11, 2019 7:39 pm

Re: Naunce of CGT on property during a divorce/separation

Postby Wayfarer1 » Tue Feb 12, 2019 7:49 pm

If the transfer took place when relief did not apply (so there was a disposal at market value), the half received in the transfer would be rebased to the price paid (or market value if transferred at an undervalue).

On a later sale by B, their acquisition value would be 50% of the original purchase price (for the whole) plus the price paid (or deemed price paid) for the second 50%.
AGoodman - that is clear and a really helpful response. It makes sense to be as your describe!

May I ask how you know this is the case or where I could find it in the Tax Manual? I found myself floundering when I tried looking before...

AGoodman
Posts: 805
Joined: Fri May 16, 2014 3:47 pm

Re: Naunce of CGT on property during a divorce/separation

Postby AGoodman » Wed Feb 13, 2019 11:23 am

It's just an application of very basic principles.


No spousal relief so the transfer is treated as a regular disposal and acquisition.

Deemed market value for a transfer at an undervalue / not at arms length - s.17 TCGA / Deemed to be not at arms length between connected parties - s.18

Apportionment on a part disposal - s.42 TCGA


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