CGT and divorce for buy to let landlords

CGT and divorce for buy to let landlords

15:45 PM, 23rd May 2012, About 12 years ago 3

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Breaking up is hard to do – and that applies to a property portfolio as much as a marriage. CGT and divorce for buy to let landlords

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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14:32 PM, 28th May 2012, About 12 years ago

While I'm all in favour of DIY whenever you really know what you are doing, I think perhaps this article under-emphasises the importance of getting legal advice from a very early stage and ensuring any written agreement is drawn up by a divorce lawyer.

It will probably cost at least £2K or so to have a full assessment of your financial situation enshrined in a water-tight divorce settlement. But if the portfolio is more than about £250K (and that's nowadays the value of a one-bed apartment in some parts of London!) the legal fees are peanuts compared to the loss you could suffer, either to the Revenue or your ex or both, if you try doing it yourself and get it wrong!

18:51 PM, 28th May 2012, About 12 years ago

A good way to stop losing anything in a divorce is to file for personal bankruptcy.
An associate  has just declared bankruptcy before appearing in the Royal Courts of Justice in London.
At the divorce hearing the lawyer put his head in his hands when the bankruptcy was announced.
No deductions can be made from his wages as he has nothing left after normal expenses.
No pension assignment can happen etc and as a consequence his ex-wife will have to leave a negative equity house and be homeless.
After a year he will be discharged from bankruptcy.
His ex won't have a mortgage serviced and a foreign property has to be sold by the OR.
Bankruptcy is a fantastic way to stop paying for ex's houses etc.
There is no shame in bankruptcy anymore.
It stops grasping ex's and enables you to get on with your life without the overhang of continual liability for mortgages and other joint debts.
She thought he was going to continue to keep paying the mortgage and keep her in a style she was accustomed to......WRONG.
She will now be down the Job Centre with all the other riff-raff signing on and trying to be housed in some god-awful property.

9:30 AM, 29th May 2012, About 12 years ago

 Great point re. correct legal advice and having decisions rubber stamped in legalese. I think what this article is doing is simply making options clear and highlighting the strict time frame for those decisions. The more a couple are able to discuss their circumstances before going to legal paperwork the less costs all round. Each party's solicitors will take a different view but if a couple can resolve what their expectations are in a businesslike way before involving legal proceedings the whole process can be less costly, less time consuming and, with perseverence, less adversorial all around which ultimately is the best outcome for everyone in making a new start. In my experience, even in amicable circumstances, £2k is a very optimistic estimate!

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