CGT and divorce for buy to let landlordsMake Text Bigger
Breaking up is hard to do – and that applies to a property portfolio as much as a marriage.
Luckily, if buy to let landlords divorce, some special tax rules can help minimise the taxes involved in any exchange of assets.
Generally, disposals between a husband and wife or couples in a civil partnership are exempt from capital gains tax (CGT), so property transfers within the marriage do not trigger any liability.
The rules change on separation and divorce.
- If the couple are still living together, the CGT exemption still applies regardless of the state of their relationship
- The CGT exemption continues for the first 12 months after the couple starts living apart.Couples living together or unmarried couples or relatives jointly owning property cannot take advantage of this CGT exemption if their relationship breaks down.
- The couple stay ‘connected’ for CGT until the date of the decree absolute, so any transfers after the first 12 months of separation are tax treated as sales at market value
Other CGT reliefs like private residence relief (PRR) and lettings relief apply at all stages of the break-up.
The 12-month exemption is designed to give a couple time to make financial plans without an unfair tax charge.
Even in the most contested of divorces, couples should put their differences aside and protect their finances.
However tough the negotiations, decide who gets what from the property portfolio before the end of the 12-month period of grace before CGT is charged.
Don’t worry about the cash, but agree how to divvy the portfolio in principle – the date of this agreement is the trigger date for CGT, not the date when any cash changes hands.
Leaving agreements to chance is not a good idea – gather evidence along the way to prove the relationship has ended, like a copy of the deed of separation and a property transfer agreement witnessed by a solicitor.
This way, the tax man cannot undermine any negotiations by demanding more tax.
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