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Separation

Has anyone got a definition

Husband and wife decide to part company and wife leaves the matrimonial home Feb 2018. They jointly own 2 rental properties in addition to the matrimonial home.(MM)

Following mediation an agreement has been reached whereby each transfers their half of a rental property to the other and the MM is sold.

HMRC state -

Rental properties-If the transfer is agreed between them in the tax year of separation then the transfer is CGT free

The couple are still married. My query is what is the tax definition of separation

I should add the client is a solicitor 

Has anybody got the answer??

 

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10th Jan 2019 15:13

There is no "tax definition" of married, but there is a definition of living together (...as man and wife etc.) s.1011 ITA 2007 - reproduced at the foot of this post.

Living together is the key actor in determining if a couple are separated. As far as I know there's no statutory definition of separated. It therefore has the everyday meaning you would expect it to and HMRC go along with that.

If this helps, when I did my training with the IR we were told to accept that if each spouse agrees they've separated then it should be accepted they have unless there are suspicions that it was a tax avoidance wheeze. Nothing has changed in HMRC's view since, although the tax avoidance issue is less of an issue these days because of independent taxation.

Difficulty very occasionally arose where separated couples lived in the same house, but were not "living together as husband and wife" . We were required to ask whether they were "living together..... " with a nudge and a wink and hope the taxpayer obliged with a suitable answer.

Separation is therefore, not living together as husband and wife (or the other equivalents now possible).

section 1011 ITA:

References to married persons, or civil partners, living together

Individuals who are married to, or are civil partners of, each other are treated for the purposes of the Income Tax Acts as living together unless—
(a)
they are separated under an order of a court of competent jurisdiction,
(b)
they are separated by deed of separation, or
(c)
they are in fact separated in circumstances in which the separation is likely to be permanent.

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to tonycourt
10th Jan 2019 18:30

this is tricky particularly point c. obviously this rule is unfair to couples who separate late in the tax year.

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10th Jan 2019 15:17

It has to be the date the wife moved out.

But don’t forget the relief available in the circumstances you set out for mutual exchanges of property interests.

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to johngroganjga
10th Jan 2019 15:24

I have to disagree John. Living in the same property does not mean a couple are living together as a married couple. You might find that unlikely, but I've personally know of more than one example of this.

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to tonycourt
10th Jan 2019 15:52

Yes I know. Perhaps I should have said that it can’t be after she moved out.

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10th Jan 2019 15:40

John I'm aware of that hence the need to attempt to move separation into the 2018/19 tax year without telling porkies
In their helpful way HMRC put the following into the Help Sheet
"As the rules are complicated, they’re not included in this helpsheet. Once you hold the necessary information, ask us or your tax adviser for help"
I've phoned the help line and a technical advisor will call me back.
However I prefer the collective wisdom of AWEB

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to bernard michael
10th Jan 2019 15:52

With respect you can't "move separation into the 2018/19 tax year" if it already happened. And, in my view which I've confidence in, simply moving out (or remaining in) of the marital home is not a deciding factor for whether separation has occurred - that's partly supported by s.1011 ITA.

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to bernard michael
10th Jan 2019 15:55

Why do you need to when you’ve got the other relief to produce the same result whenever the transfers take place - assuming the values of the two properties are similar?

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10th Jan 2019 16:03

?"the other relief"

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to bernard michael
10th Jan 2019 16:25

This is what I think John is referring to. I've used it several times for clients.
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg73015

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to bernard michael
10th Jan 2019 17:20

The one you said you were aware of.

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12th Jan 2019 08:22

bernard michael wrote:

Husband and wife decide to part company and wife leaves the matrimonial home Feb 2018.... Following mediation....

That intro does make it sound like separation was by Feb 2018. But it could just be the way you're telling it.

It's not unusual to move out during a period of trial separation. Some couples, during such a period, might seek help (subsequently described by a solicitor and/or an OP as "mediation") aimed at saving the marriage.

If there's a reconciliation, the deeming provision Tony quotes means that they are treated as having lived together throughout. The deeming provision stops applying only when the breakdown becomes permanent.

So I disagree with John and Tony, to the extent that they appear to be saying that separation is always before moving out (if I've misunderstood your remarks, I apologise).

But if, on the facts, separation was indeed in 2017/18 or earlier (and it sounds like it was) I agree with John and Tony that you need to put the time machine away.

Who dealt with the SDLT?

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