HOLDOVER RELIEF / CGT ON MARITAL SPLIT

HOLDOVER RELIEF / CGT ON MARITAL SPLIT

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Hello. I have been trying to get an answer to a situation regarding CGT on split of assets on divorce before I sign on the dotted line but my solicitor doesn't know the answer and I seem to get conflicting views from every corner.

Simply put, soon to be ex-spouse has two rental properties, in spouse's own name only regarding mortgage and land registry. Spouse agrees that we should split them equally between us (50% of each property) as they were intended to be joint income and nest egg for later years but doesn't want to sell them straight away as needs the income for next 12 months to 3 years depending on circumstances. So far so good. 

My solicitor says "my" 50% of each should be transferred into my name to safeguard my interests and I understand that would mean we could also jointly apply for holdover relief regarding the CGT that would be due when each is sold on the market - probably in separate tax years. I was told we would need the mortgage holder’s permission to transfer 50% beneficial interest in each to me but they just want to vary the mortgage to include me and charge lots of fees to do so. I, of course, do not want to join my almost ex-spouse on a mortgage as we are "un-coupling" not co-joining and anyway, we both already have mortgages on our own homes (mine being the larger mortgage) and I don't want another one.

So my questions are please;

1. As we apparently cannot register the agreed change to shared ownership at the Land Registry without the mortgage holders permission which is not forthcoming (and presumably this is quite common) is a legal agreement between us as part of the divorce, sufficient to qualify for hold over relief and/or does my putting a second charge on each property instead of changing the ownership at LR (still requires mortgage holders permission) or my spouse undertaking to keep the properties in trust for us equally, make any difference to this either way as far as HMRC would view it?

2. I understand CGT is calculated from the original purchase price to the value at point of sale/disposal.  If hold relief were obtained between us, would my CGT be calculated on the gain from the original purchase price to when it is sold in the future or from the market value at the time of the divorce agreement (presuming no change at the Land Registry for reasons above)?  Presumably when sold in the future, CGT on my spouse's remaining share would be calculated from the original purchase price on the now 50% only?

3. If hold over relief cannot be applied and the properties are sold now or in the future (subject to the usual divorce legalese) does anybody know if the CGT would be calculated (against my spouse only) on the chargeable gain and paid from the equity and then the remainder, if any, split between us or would the equity be split between us and my spouse have to pay the whole CGT due from their share only?

I just want to get it right so I can do the best thing. It may be that the whole hold-over relief/CGT issue is a red herring anyway?

Apologies for the long winded saga but this really is the summary version and I am told that the devil is in the detail. Thank you for your indulgence and hopefully someone can clear the muddied waters for me?

Replies (5)

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By johngroganjga
20th Jul 2015 20:16

Why do you think holdover relief is available on what you describe as rental properties?

In the absence of holdover relief, the gain on transfer is, of course, taxable in the hands of the transferor. The incidence of that tax liability is something to take into account in the settlement between you.

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Replying to DJKL:
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By YFS2015
20th Jul 2015 22:32

HS281 possibly

Thank you for your reply John.

I have seen mention of Hold Over Relief being applicable in my circumstances according to Help Sheet 281 (the section on hold over relief) on the hmrc website at this link

https://www.gov.uk/government/publications/husband-and-wife-civil-partne...

 

No consideration is being given or rights surrendered in return for a share of the "asset" (rental properties) and the transfer would be part of a consent order under the divorce agreement confirming our own prior agreement when we separated.  But that's the solicitors bit. She mentioned that it may well apply but said the accounting implications were out of her area of expertise and it seems it is a bit of a cross-border question leaving me in doubt as to what is what. I have spoken to HMRC technical advice who say it can apply but I am not sure as to what they would accept as a transfer as the bank won't let me be added at the land registry unless I also add myself to the mortgage.

Is this perhaps something that is okay in theory but difficult to achieve to HMRCs satisfaction when the time comes, so perhaps not worth pursuing?

Thank you for confirming that the tax lies with the transferor but the incidence can, as suspected, be agreed between us so that neither one of us is unfairly disadvantaged.

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By dropoutguy
20th Jul 2015 23:13

What about

the exchange of joint interests rollover relief at s248A TCGA 1992.

 

Might the properties presently owned 50/50 be divided up one apiece so as to obtain this relief?

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By johngroganjga
21st Jul 2015 08:49

You are taking HMRC's comments out of context. Holdover relief in principle is available only when BUSINESS assets are transferred, which rental properties won't be. HMRC's comments relate to whether in the specific circumstances of divorce settlements assets
transferred are rightly treated as having been gifted - as you have seen HMRC say they are, but that does not help you, or rather it does not help your soon to be ex spouse.

@dropoutguy there are no jointly held assets here, only assets held in their entirety by the soon to be ex spouse.

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By dropoutguy
21st Jul 2015 09:06

It sounds as though

the argument could be made that the parties always regarded them as beneficially owned 50/50.  ( intended to provide joint income etc )

An appropriately worded Consent Order would I think not be debated by HMRC.

However, this is the danger of the OP seeking ( free ) advice on this site. We are both speculating merely on the basis of the posts and without taking a history or discussing with the instructed solicitor.

If the OP is in the West MIdlands, we would be happy to look at the matter formally.

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