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Capital Gains Tax

  • Sera
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27 Sep 07 #4028 by Sera
Topic started by Sera
Situation: I have house, (now rented out), owned before marriage.
Soon-2bex has house, (marital home we still share).

Since he wants divorce, (will be applied for Jan 08), and I will eventually move back to my rental property. What happens if the court 'freezes' our assets, regarding Capital Gains Tax???

I feel sad enough losing my marriage, without further losing 40% (?) in CGT, if this issue is not resolved within 3 yrs of marriage.

Only ex2b has his name on marital home (I have registered MHR on his deed), and only my name appears on my deeds on the house I had prior to marriage.

Not sure if CGT is applied to all properties, or only if BOTH names appear?

Also, at what point would a court order a freeze, or is that down to our decision?

  • Fiona
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27 Sep 07 #4036 by Fiona
Reply from Fiona
Hope this doesn't muddy the waters. :unsure:

The relief from CGT on ones main private residency extends to three years after moving out. At the moment you both live in the FMH so there is no CGT to be paid on that. However, you don't mention when you moved from the rental property so we don't know whether it's subject to CGT just now.

If it is, when you sell the property tax is due at 40% on any gain in value since it was bought, minus any outlay such as home improvements. There is an annual capital gains allowance (currently approx £9k per annum per person) upon which no tax is paid and there is 'taper relief.' Over the years this effectively reduces the percentage of capital gain on which tax is due. :S

I'm not a lawyer, but my understanding is that freezing assets is considered draconian and a court would only do it in exceptional circumstances if there was a serious risk of misappropriation of assets. The situation regarding capital gains wouldn't change unless currently there is no CGT on the rental property and it would become due because the principle Private Residency Relief expired, or if you moved into the rental property. If this were to happen I think you would both be entitled to the relief on your own properties. Perhaps Will or Mike can confirm.

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27 Sep 07 #4041 by Sera
Reply from Sera
Muddy waters, it's complicated! If anyone else can add appreciated.

I came to live in MH in August 2005. But kept all bills / council tax in my old home in my name there. Then I took on a lodger, just to keep bills paid, house occupied. (Aussie bloke, no formal tennure agreed).

Married only Jan 07. (Hence no application until Jan 08)

So, can I buy myself grace from CGT until Jan 2010? (three years after marriage?) when I'll possibly be divorced?

Or does it all apply from Aug 2005, when we were first co-habiting.

Last question: Would I be better to sell my home, (whilst I still live in MH) BEFORE divorce application?. Not in an attempt to be 'disposing of assets', (I could invest the equity in a high-interest saving account. But when form E comes around, I we don't have the CGT problem.

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27 Sep 07 #4050 by Fiona
Reply from Fiona
BTW I'm not an accountant either. :lol:

Where you live determines your residency so as you moved out of your property in the tax year 2005 the main Private Residency Relief ends this tax year and CGT will kick in from the start of April 2008 unless you move back or sell. You won't necessarily be better off selling, it's a case of doing some number crunching and making a comparison.

As far as the FMH is concerned it's in his sole name and therefore he is entitled to the PRR relief so CGT wouldn't be a factor until 3 years after he moved out. That's my understanding anyway.

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27 Sep 07 #4053 by Sera
Reply from Sera
Fiona, continued thanks, for someone not a lawyer, and not accountant, you're well knowledged!

OK, so assuming I move back in by April 2008, (when hopefully all 'issues' re the matrimonial home will be sorted), am I safe in assuming that my name being on MY house, and ex's name being on this MH house, I can escape the CGT?

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27 Sep 07 #4056 by Fiona
Reply from Fiona
Yes I think so, but it would be good to have another opinion in case I've missed something.

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27 Sep 07 #4061 by Vail
Reply from Vail
Hi,

Sera, why is xtb's going to be sold and yours isn't?

Fiona, the three years business applies to divorce.

Sera, you can only have one PPR. Your rented property ceased to be your PPR in April 2005. Let's say it was your PPR since you lived in it since 2000. If you elect to have xtb's house as your PPR and it is sold in 2008, you have no CGT to pay. If your rented property is sold in 2008 you have the pay a fraction of the full CGT which in this example is 3/8. Three years that it wasn't your PPR over the eight years that you had it, five years being allowed CGT free because it was your PPR 2000 - 2005.

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