CGT question on family home, post divorce

[benF]

Hi all

newb here, advice needed!

I have a very specific question about CGT and divorce I'm hoping for some help with understanding....

• Mr E and Ms A bought a house together in 2001 for £355k
• They took out a £200k int-only mortgage
• Mr E and Ms A then immediately spent £100k on significant improvements to the house
• They are joint owners of the house on a 50:50 basis
• Mr E and Ms A separated in Dec 2015, at which point the house was worth £750k
• Ms A was allowed to remain living in the family house with the children. Mr E moved out
• As part of their divorce settlement, Ms A agreed to pay half of the CGT liability when it arose
• Currently the house is worth £800k. They still have the int-only mortgage of £200k. Ms A is thinking of selling

The question is: If the house was sold now for £800k, what would Mr E's CGT liability be? (assume he has full allowance available to him)

thanks in advance for any help you can offer

[Amethyst]

When you say 'joint owners of the house on a 50:50 basis' is there a declaration of trust and the house is owned as tenants in common with shares of 50/50 ? or is it owned as joint beneficial tenants and you've just agreed between yourselves during the divorce to a 50/50 split ? (check on land registry if you aren't certain) ... and when Ms A sells will Mr E get 50% of the equity in the property ?

Oh, and does Mr E own his own property as his main residence?

[benF]

the house is owned as tenants in common with shares of 50/50. When Ms A sells, Mr E will get 50% of the equity.
Yes, Mr E now owns another property as his main residence.


thanks in advance!

[Amethyst]

Mr E lived there as his main residence until 2015 so theres 4 years out of 18 where CGT may be payable, so 4/18ths of the amount - you ignore the mortgage - so Mr E's share of the gain is 222500 ( 800 less 355 divided 50/50 )- so he'd pay CGT on around £49444 (4/18ths), assuming a £50k income it'd be taxed at 28% so CGT would be near £11k, income of £25k pa CGT would be near £9k ( as half would be at 18% rather than 28% ) and so Mr E would have to pay something between £4k - £6k ( due to the agreement Ms A pays half the CGT )

Whether the £100k improvements are allowed is a matter of what they are and if they added to the house value, if they are ( like an extension / garage / loft conversion etc ) then that would reduce things, as would the estate agents costs, stamp duty etc, so £6k should be the max.

Lets guess £75k was allowable and £25k was just faff ... reduces Mr E share of gain to £41108 so half the CGT would be £3k - £4.2k depending on income.

Does that help at all ? I know my maths explaining isn't brilliant...you'd be best getting an accountant to get exact figures and rules set down but as a guide, it should be a max of £6k liability to Mr E if Ms A pays half.

There is some guidance on the gov website - https://www.gov.uk/tax-sell-property/work-out-your-gain

Just ran through the gov.uk calc... it's pretty good for a guide.

Back English | Cymraeg

£8,237.60

Capital Gains Tax to pay for the 2018 to 2019 tax year


How we've worked this out

Your total gain

Value when you sold the property
£400,000

Minus the value of the property when you acquired it
£177,500

Minus all costs, including improvements
£37,502

Total gain
£184,998


Your deductions

Reliefs used ( 14 yrs - relief when Mr E lived there as main residence )
£143,878

Capital Gains Tax Annual Exempt Amount used
£11,700

Total deductions
£155,578


Your taxable gain

Total gain
£184,998

Minus deductions
£155,578

Taxable gain
£29,420


Your tax rate

These rates are based on your Income Tax bands:

£29,420 taxable gain multiplied by 28% tax rate
£8,237.60

Tax to pay
£8,237.60

[benF]

thank you Amethyst that is incredibly helpful!

[Amethyst]

Check the math but principles should be right xxx I think it might be less than Mr E thought it would be ( it's less than I thought it might be anyway )