Monitor your approach with the property rules of capital gains tax


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About 18 months ago my husband and I decided to go our separate ways after almost 30 years together. The arrangement is very friendly and we are both now in a new relationship.

We jointly own a property valued at £ 770,000. It was bought for £ 590,000, in September 2016.

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We both lived there full time from that date until July 2019 when we parted ways.

Andrew Paterson

I rented an apartment closer to my job for a few months while we worked on the details, but I went home four times a week to help our teenage son with his homework and spent the night with him when his. father was away once a week. So I felt it was still my primary residence, even though I signed up for the apartment building tax and changed the details on my driver’s license.

We put the sale of the house on hold during the pandemic, so I stayed at the apartment. We were in a family bubble and spent time together making the house ready for sale.

My husband and I are now divorced and keen to move on. However, I have been told that because the house is no longer considered my primary residence, I will be liable for capital gains tax. [CGT] on my half of the profit.

I earn a modest teaching salary, while my husband has six figures. However, he will not be indebted to the CGT because he is judged to be in the process of selling his main residence, which seems unfair to me. Is there a way to appeal?

ACGT is a tax on the profit you make when you sell an asset that has increased in value while you owned it. As with all taxes, there are a number of reliefs and exemptions, but – you won’t be surprised to learn – these each have their own complex rules and qualifications.

The private residence relief applies when a person sells their home and normally means that no CGT is due on such a sale. For this to be the case, however, the seller must have lived in the property as their primary residence for the duration of their ownership. In your case, you have lived in the property for almost three years, but it may no longer be considered your primary residence after July 2019.

By the way, if you own more than one dwelling, you need to designate which one should be considered your primary residence for CGT purposes. This is something some politicians with London side properties and constituency houses took advantage of a few years ago.

The difficulty for you, however, is that when you changed your driver’s license details, you appear to have moved your primary residence to your rental apartment.

It is unlikely that your return visits to the family home – although they have been regular – will be sufficient for it to still be considered your permanent residence.

However, other evidence that might be relevant includes whether or not you changed your address for your bank, GP, and on the voters list.

There are various special tax rules that apply when a couple separates.

With regard to CGT, you would have been able to claim private residence relief for your entire period of ownership, but only if you transferred your share in the property to your husband.

If the relief for private residence is not fully accessible to you, the calculation of your CGT liability is unfortunately not entirely simple.

1 Calculate the gain This is normally your share of the sale price minus the purchase price. You can reduce this gain by deducting selling and buying expenses, such as legal and surveyor fees, as well as the cost of upgrades, such as a new kitchen or bathroom.

Routine maintenance costs, such as painting and decorating, cannot be deducted.

2 Calculate how long relief is available In your case, this will be a percentage of your total ownership period when you moved in July 2019. Suppose you sell the house in September, which means you will have owned it for a total of five years (60 months).

Relief is available for the period you actually lived there full time – in this case, 34 months. There is also a special rule extension that allows you to add the last nine months of your property, bringing your total to 43 months.

The relief is therefore available for 43/60 months – for example, 71.7% of the gain. This means that if your winning, calculated in step 1, is £ 100,000, the remaining £ 28,333 will be charged.

3 Deducting the annual exemption Just as you only start paying income tax after you have earned a certain amount, so does the CGT. In the current tax year, the first £ 12,300 of your taxable earnings is not taxable. Using the numbers above, that would reduce your taxable gain from £ 28,333 to £ 16,033.

4 CGT Rate What you actually pay in CGT, whether it applies to a home sale, depends on your income tax bracket and is charged at 18% or 28% for higher rate taxpayers.

Finally, I would like to point out that the rules concerning the due date for CGT payments on real estate sales have recently been modified. Any CGT due must now be paid within 30 days of the date of sale and a CGT return sent to HMRC within the same time frame.

The personal legal point of view expressed above is general and limited to the facts provided, it cannot be invoked as an alternative to specific and comprehensive legal advice. You should always consult your lawyer if you have a question on a legal matter.

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Esther L. Steinbach

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