CGT on jointly owned asset

CGT on jointly owned asset

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H & W had jointly owned family home. They subsequently split up and H moves out. H pays all bills etc in support of W & 3 children. About 5 years after he moved out the kids are growing and need another bedroom. He alone funds a £60k extension. Eventually the property is sold and proceeds are split 50:50.

Question: Does his cost include the full £60k enhancement expenditure or only £30k on the basis of a jointly owned property. I note the legislation says the two are to be treated separately for CGT purpposes but this is a new one on me so any pointers would be welcome. It has no impact on W as it was her PPR throughout ownership.

Thanks     Steve

Replies (12)

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Euan's picture
By Euan MacLennan
13th Oct 2014 14:07

Gain is on the asset

The gain arises on the asset - the family home.  You take the total proceeds of sale of the house (net of incidental costs of sale) and deduct from that, the total original cost of the house (plus incidental costs of purchase) and the total cost of the extension.  That gives you the total gain on the asset, which is assessable 50:50 on each joint owner.  Each can then claim the exemptions to which they are individually entitled against their 50% share of the total gain.  W can claim main residence relief for the entire period of joint ownership, but H can only claim main residence relief for the period until the couple separated plus the last 18 months, and, of course, the annual exemption.

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By Steve Holloway
13th Oct 2014 14:21

Thanks Euan ...

much appreciated.

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By King_Maker
13th Oct 2014 14:33

Are they divorced? If so, was there a Court Order covering the disposition of the former matrimonial home?

Did they discuss how the £60,000 was to be treated when the property was sold?

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By Steve Holloway
13th Oct 2014 14:39

Yes ... no and no ...

?

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By King_Maker
13th Oct 2014 15:08

So what was the overall agreement?

H to, effectively, pay for everything (including extension) to receive 50% of the sale proceeds?

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Euan's picture
By Euan MacLennan
13th Oct 2014 15:28

Isn't there a saying?

on the lines of:

Life's a [***].  Then, you marry one.  Then, you divorce her and the [***] gets half of everything you ever owned.

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Replying to Simon V:
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By pawncob
13th Oct 2014 17:43

@Euan

Euan MacLennan wrote:

on the lines of:

Life's a [***].  Then, you marry one.  Then, you divorce her and the [***] gets half of everything you ever owned.

 

I hope Portia doesn't read this! (Blue touch paper?)

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By chicken farmer
13th Oct 2014 15:34

The question was whether he could claim all the enhancement cost

I believe he can. Each individual's gain is separate calculation.

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By Steve Kesby
13th Oct 2014 15:55

I disagree

I agree that each individual has their own gain arising on disposal of their interest in the house.

However, to be deductible, the enhancement expenditure must be reflected in the state or nature of the asset (that the individual is disposing of) at the time of the disposal.

Only half of the husband's enhancement expenditure is reflected in the state or nature of his 50% interest in the house at the time of disposal.

The other 50% being reflected in the wife's half interest, which she can't claim, because she didn't incur the expenditure. Happily for her she gets PPR on it.

So by performing two calculations, you get the same result for the husband as calculating one gain and dividing it by two.

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Euan's picture
By Euan MacLennan
13th Oct 2014 18:10

@Pawncob

What was it in my comment which made you think of Portia?

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By Steve Holloway
14th Oct 2014 08:17

The agreement .....

was that having got his wife pregnant three times and being quite content that his now ex-wife raised said children then he really ought to house and support them and when all was done she shouldn't be denied her share of the house profit.

Quaintly old fashioned I suppose!!

Thanks for the analysis ... very helpful. Straw clutching over with!

 

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By chicken farmer
14th Oct 2014 08:18

But ...
A joint owner owns an undivided half share in the entire property so surely the enhancement expenditure will be reflected in the value of the whole asset

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