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CGT on former home following split from boyfriend

Legal ownership v beneficial ownership

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A solicitor has just introduced me to a client for whom she is finalising a separation agreement from her ex-partner.

They bought a property in joint names in 2014 where they lived together until she left in Feburary 2019, so there is CGT to consider because of the new 9 month rule. They have agreed that he will pay her £35000 and have her name taken off the mortgage in order to transfer the property into his sole name. This figure is much lower than half the equity because they both agree he has paid much more than her for the property. The current value is £550K and the mortgage £270K 

So for CGT, should her share of the gain be based on 50% of current value because of joint ownership or 12.5% because of what they have agreed she will actually receive?

I feel it should be the latter and CG70230 would seem to be back this up, but sadly no declaration of trust was prepared when they bought the property.

Thanks for any input.

 

Replies (28)

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By kestrepo
11th Aug 2020 16:21

Might be the heat (and boy is it hot today) but thought I would ask - why would there be a CGT charge on someones home?

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Replying to kestrepo:
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By Paul Crowley
11th Aug 2020 16:36

She left the property in Feb 2019.

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Replying to kestrepo:
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By Tax Dragon
11th Aug 2020 16:41

I've melted. And all my intelligence circuits too.

I think I can answer your question though: it's not her home. (It used to be, before it wasn't.)

My alternative question is: isn't the assumption of the mortgage by the ex part of the consideration? (So 12.5% looks all wrong.) OP, do you know the amount, if any, on which SDLT is being paid? If this was a bargain at arm's length, I don't see why taxable proceeds would not equal actual consideration. And yeah, take that proportion and apply it to the purchase price to work out her (pre-PRR) gain.

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Replying to Tax Dragon:
Hallerud at Easter
By DJKL
11th Aug 2020 16:57

Surely proceeds = the sum of £35k + her share of mortgage taken on by purchaser + balance in effect owing from her to him during ownership of the property ( in effect a loan being settled).

Unless she is being cheated on the deal surely this will roughly agree to 50% of the market value of the property.

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Replying to DJKL:
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By Tax Dragon
11th Aug 2020 17:14

Quite possibly.

Given that this is a referral from a solicitor, we really shouldn't need to be guessing.

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By jonharris999
11th Aug 2020 16:38

On these details alone, I'm struggling to see where her gain is. Start with that.

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Hallerud at Easter
By DJKL
11th Aug 2020 16:48

The cost of the property in 2014 might be useful to people reading this thread.

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Replying to DJKL:
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By Paul Crowley
11th Aug 2020 17:55

Critical, I would have thought

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Replying to Paul Crowley:
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By Tax Dragon
11th Aug 2020 23:03

Personally, I don't see the relevance. Or has Aweb become a "get your tax calculated here" service?

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Replying to Tax Dragon:
Hallerud at Easter
By DJKL
12th Aug 2020 09:29

The relevance may be that possibly there is no CGT payable irrespective of approach taken by the OP.

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Replying to DJKL:
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By Tax Dragon
12th Aug 2020 09:34

Let's find out: @OP, is there tax at stake?

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By ireallyshouldknowthisbut
11th Aug 2020 17:42

Assuming there is no marriage, then the gain would surely just be the share that is agreed as hers beneficially during this negotiation, which I imagine would be where the £35k has come from (about 30%) Computation as per DKL above to confirm.

They would have had to have bought this for under £300k ish to trouble her CGT allowance.

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Replying to ireallyshouldknowthisbut:
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By Tax Dragon
11th Aug 2020 23:10

Isn't this the question?

But suppose they originally bought it 50:50, has he effectively bought from she by paying a larger share of costs, or has he effectively done no more than loan to she per DJKL's comment? (When I've suggested a he-buys-from-she type outcome in relation to Justin's famed SDLT dodges, Justin has either ignored me or poopooed the suggestion.)

But I come back to... it was referred by a solicitor, why the wotsit is the OP asking us not the solicitor?

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By Paul Crowley
12th Aug 2020 01:51

If this is just a once off CGT computation then sounds like a poisoned chalice.

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Replying to Paul Crowley:
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By richard thomas
12th Aug 2020 10:25

The rules are different for them because poisoned chalices are chattels, as indeed are unpoisoned ones!

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Replying to richard thomas:
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By Tax Dragon
12th Aug 2020 10:46

There was a young couple who lived in a chalice.
Though they had many fights, she left without malice.
He took on the mortgage and gave her some bread;
'Twas a fair settlement said he, but the tax hurt her accountant's head.

Sorry for the lack of scan - I am in the early days of my apprenticeship to DJKL, stepurhan & co LLP.

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Replying to richard thomas:
Hallerud at Easter
By DJKL
12th Aug 2020 10:55

Who seeketh the Grail.

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Replying to DJKL:
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By Tax Dragon
12th Aug 2020 11:11

There speaketh the master; all hail.

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Replying to Tax Dragon:
Hallerud at Easter
By DJKL
12th Aug 2020 11:55

NO CONSIDERATION

A couple a flat did buy
Their offer had succeeded
Eventually the girl did fly
An accounting then being needed

The mortgage he would take
The obligation upon his plate
And to placate his former paramour
A bung was needed at the door

But said he “I paid more than thee,
Each month I paid the bigger share”
I did not get down on one knee
My wordly goods you do not snare.

So to learned counsel they did talk
Who devised a scheme , a division
And when she made her final walk
They were agreed, not riven.

Thirty five bags of sand
Her share as she departed
And just the tax bill still to land
Her accountant now downhearted

Consideration is the thing
It’s really ill defined
On Accounting Web I’ll have a fling
But doubt they’ll be refined.

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Replying to DJKL:
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By Tax Dragon
12th Aug 2020 12:08

Wow.

And there's me thinking I'd done well with my nursery rhyme.

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Replying to Tax Dragon:
Hallerud at Easter
By DJKL
12th Aug 2020 12:23

All that is needed is a few years at university reading an awful lot of poetry and ensuring that everything Milton,Donne, Shakespeare, Herbert and Marvell did you then totally ignore.

I think of my offerings as more following the doggerel tradition.

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Replying to DJKL:
Caroline
By accountantccole
12th Aug 2020 15:07

You have waaayyyyy too much time on your hands LOL

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Replying to accountantccole:
Hallerud at Easter
By DJKL
12th Aug 2020 15:12

It's great being a part time worker-as Ziggy mentioned just Five Years and then I will do nothing except reading, gardening,DIY, fishing,car restoration, holidays (when forced) and model railways.

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By whitevanman
12th Aug 2020 22:36

Afraid I cannot wax lyrical about chalices and grails (agree they are chattels). Agree also that the solicitor is perhaps best placed to answer important parts of the question.
However, in the absence of evidence to the contrary, what each party acquired was a 50% interest in the property. It follows that what has been disposed of is the said 50%.
As often happens we don't have enough facts but if we assume purchase price was, say, £350k, valuation at disposal £550k and owned from Feb 2014 to August 2020, the gain (50%) would be £100k and the chargeable bit would be 9 months out of 79 (about 11%). So, £11,392. Assuming no other gains, there would be no tax to pay.
The consideration received can be taken as 50% of MV however it breaks down. DJKL suggests a loan between he and she (not really any evidence) but since they took a joint mortgage it would not be stretching matters to say that he has repaid more of "his share" so that she owed more than half of the outstanding £270k at disposal. Either way the result is that she had got 50% of the MV (unless she has been ripped-off) for her 50%.
Lot of words to get to the conclusion that, as like as not, there is no CGT to pay. But it does depend on the facts.

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Replying to whitevanman:
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By Tax Dragon
12th Aug 2020 23:12

I'm still interested to know how it was treated for SDLT - undoubtedly the more interesting tax question here.

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Replying to Tax Dragon:
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By whitevanman
13th Aug 2020 00:04

Agreed but I cannot see why it should be anything but a disposal of a 50% interest for OMV (seems to be £275k).

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Replying to whitevanman:
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By Tax Dragon
13th Aug 2020 11:16

TBH me neither - even if the argument was that he paid more of the (mortgage) cost (so paid his ex less now), that would come into the taxable consideration.

Where is Justin when you need him?

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Replying to whitevanman:
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By Paul Crowley
13th Aug 2020 11:47

Agree. All that was needed was purchase price to kick it into touch.
But still do not have that one single figure

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