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CGT on separation and the 18 moth rule

DOes the 18 month rule apply

Client separated in July 2016 an informal agreement was agreed between spouses to transfer  half the family home from one spouse to another. this is about to be formally agreed . I note that on separation the couple have until the end of the tax to make the transfer CGT free (for the transferor). if it is completed say in December 2017  can the transferor also make use of the 18 month rule or is the deemed occupation of the last 18 months not relevant in this instance

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13th Oct 2017 14:28

Transfer of the family home

The family home often forms a significant part of overall family wealth and the home itself or the proceeds on sale may form an important part of any divorce settlement.

General Principles

Gains on the disposal of an individual's main home residence, are exempt from CGT. A married couple, or civil partners, can only have one main residence between them. If a number of properties are owned by the couple, it is possible to elect for one of the properties to be treated as their main residence (even if it is owned in the sole name of one spouse rather than jointly). Elections may be made within 2 years of a change in a combination of residences, for example when a new residence is bought or sold. In the absence of an election, the couple's main residence will be determined based on the facts of the situation. If an individual has lived in a property as their main home at any point, the last 18 months of ownership are treated as a period of residence regardless of whether that individual lived in the property during that time or not. In certain cases this period is 36 months.

If more than one property is used as a residence by the spouses, the capital gains position for each should be reviewed at an early stage to see whether there is scope for making an election or varying an existing election to minimise CGT across the properties overall. It should be borne in mind that a residence need not be owned; a rented flat also counts.

Sale of property and division of proceeds

Where the family home is to be sold and the proceeds divided between the spouses under the divorce settlement, the sale will be exempt from CGT in the hands of both the spouse who remains living in the home at the date of sale and the departing spouse, as long as the sale takes place within 18 months of the departing spouse having left the family home.

If the sale takes place more than 18 months after the departing spouse left, a proportion of the overall gain attributable to the departing spouse will be subject to CGT.

If the departing spouse has elected for another property to be treated as their main residence following departure, any gain relating to the period following the election will be taxable in the hands of the departing spouse.

Transfer of property to occupying spouse

In certain cases, the departing spouse either owns the family home in their sole name or owns the home jointly with the occupying spouse, and then transfers the home to the occupying spouse under the divorce settlement. In situations like this, it is possible for the departing spouse to claim that the home should be treated as continuing to be their main residence from the date they left it until the date it is transferred to the remaining spouse. Where this claim is made successfully, there will be no charge to CGT on the transfer to the occupying spouse.

This claim cannot be made where the departing spouse has elected for another property to be treated as their main residence. Further, the claim can only be made in cases where the departing spouse's former interest in the family home is to be transferred to the occupying spouse rather than being sold, and where the occupying spouse continues to live in the property as their main home.

At least, that's what Mr Google told me.

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to Accountant A
13th Oct 2017 15:36

thank you for this you have almost done as much research as i have! the 18 month rule may or may not be that important as no new main residence has been elected and the departing spouse has been moving about so may be able to claim that the previous marital home is still his PPR

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