Client separated in September 2013 and jointly held rental properties (retail shops and holiday flats) producing significant rental income were transferred to the husband before 5th April 2014 at no gain/no loss. Separation agreement gave the wife a maintenance of £34,000 per annum payable monthly for the rest of her life. There has been no decree nisi or decree absolute granted to date.
Husband from then on had to declare the rental profit in full and as this was over £100,000 he lost most his personal allowance and paid higher rates of tax. He couldn't sustain this tax hit each year so the proposal is that the wife is granted a lease of one of the retail shop properties for her life which has a rental income of £55,000 per annum and she gives up the maintenance in return.
This will help his income tax position, turning a non-allowable maintenance payment into a reduction in his taxable income. However we now need to look at the capital gains tax position. At present they are still connected persons and market value is used which I would guess is in excess of £400,000. Can anyone see any problems if this lease is granted after the decree absolute when they are then not connected? Does the fact she gives up her right to maintenance at the same time affect this position?