Am I liable to Capital Gains Tax if on divorce I move into one of my two properties jointly owned by my wife?
We own 2 properties[ mortgage free] one rented out the other occupied by my wife. When the divorce is settled I expect to move into one of the houses. Would we be liable for CGT as we will not be selling either of them and occupying one house each?
In short, you shouldnt have a liability upon sale of the properties as long as you are divorced.
a married couple can only have one principle primary residence (PPR) for CGT purposes whereas once divorced you can each nominate your own PPR.
you will need to let your insurer know you have moved in as it should reduce your home insurance moving from BTL to an owner occupied deal.
| 02.10.11 @ 17:03
You may only have one designated main residence for PPR (Principle Property Relief). You will be demeed to have been resident where the general burden of proof applies i.e. utility bills, bank statements, council tax etc in your name at a certian address. If the second property has been let out and you have NEVER LIVED THERE then it will be very hard to claim it as your main residence. However where you have occupied the place for a reasonable time - generally accepted to be at least six months then there is a period of up to three years in which any continued capital appreciation in its value can be exempted CGT.
CGT is based on the difference between acquisition price plus any attendant costs less disposal price less any attendant costs. Any gain is potentially chargeable. There is of course the annual CGT exemption of £10,100 - possibly two allowances for you and your exwife as the property is in joint names. So £20,200 taxable gain may be made before any charge is made anyway.
Finally you need to be aware if a 'deemed disposal' is beng made where an asset changes hands but no money changes hands there is still likely to be a deemed disposal - by your ex wife to you possibly. This is important because the deemed disposal still triggers a charge to CGT even though no money has changed hands - its seems you are awre of this by your question. Of course if only half the value will be changing hands so only half any total gain will be relaised by such a disposal on transfer of the asset into your hands alone.
At one level if it is PPR qualifying there is no CGT - at the other a maximum of fifty per cent of any gain wil be taxable as you re keeping the other half. I hope that his helps but the only definitive answer will be by your taking specialist taxation advice from a suitably qualified tax specialist I'm afraid. If you did live in the property as your main residence for say ten years out of fifteen years owned then only 5 fifteenth's of any gain will be chargeale
| 02.10.11 @ 17:14
I think richard has over thought his reply.
you are not selling the home now but might in the future. you will shortly live in it as your only home (post the divorce) therefore it will become your principal primary residence for cgt purposes.
the fact that you have not lived there before is completely irrelevant UNLESS if you suddenly decide to sell after a very short time after the divorce and after having moved in.
transfers of assets between spouses are CGT exempt even after breakdown of a marriage within certain time scales.
see here for a little HMRC guidance but your divorce lawyer will bear all this in mind as a part of the financial settlement.
many of these rules would no doubt have been written to stop "sham" separations for spouses that want to dispose of assets to double up on allowances and then suddenly reconcile after getting "all the cash".
be aware though that HMRC seldom publish minimum time periods for anything they will often use the phrase "reasonable". so you would have to live there for a reasonable period of time. the use of the word "reasonable" is very fluid and subject to interpretation whereas "6 months" is easily defined and one cannot argue on the definition! | 02.10.11 @ 23:23