CGT Mitigation after separation?

by Readers Question

9:03 AM, 26th August 2020
About a month ago

CGT Mitigation after separation?

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CGT Mitigation after separation?

I own several BTL properties, and sadly it looks as if the near future holds separation and eventual divorce. This will involve the sale of the BTL properties, and therefore a liability to Capital Gains Tax (CGT) upon realising the gain made on the properties.

One option under consideration is for me to go and live in one of the BTL properties that would have the greatest exposure to CGT. I have not previously lived in this property (or any of them for that matter), however, I am wondering as that property would become my primary residence – would this mean upon sale at some point in the future (if necessary), would I be liable to CGT?

I understand that had I lived in the property prior to letting it out then I would have been able to claim taper relief – but in the circumstances, I have outlined above, I not sure what the effect of moving into the property as my primary residence would have on CGT liability?

The best outcome for me would be to completely eliminate the 28% gain by living in the property, but any advice would be much appreciated in forming my exit strategy. The amount of profit would be approx. £150K on this particular property, so not an insignificant amount of CGT to handover to our beloved HMRC.

Thanks in anticipation of help or further direction.

Paul


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Comments

Neil Patterson

9:09 AM, 26th August 2020
About a month ago

Hi Paul,

You may have a range of mitigating options.
From one end of the spectrum (after taking advice >> https://www.property118.com/tax/) it may be worth condisering moving to a country where CGT would not be an issue for you. Also as you mention moving into a property and investigating PPR relief.
Please see Gov.uk rules and calculatior >> https://www.gov.uk/tax-sell-property/work-out-your-gain

Guidance
Private Residence Relief (Self Assessment helpsheet HS283)
Find out about tax relief available when you sell or dispose of your main home. >> https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet

Chris Bradley

15:06 PM, 26th August 2020
About a month ago

Reply to the comment left by Neil Patterson at 26/08/2020 - 09:09
In respect to a country that CGT wouldn't be an issue, I thought all property sales in UK attracted CGT irrespective if living abroad. Which country would avoid this.

Also in relation to taper relief mentioned in the original post, I thought that was no longer available, if its still available can you point me in the direction of that info please

Gameplan

19:01 PM, 26th August 2020
About a month ago

Is sale of the BTL properties inevitable?
Have you considered agreeing a fair allocation of the properties and then transferring to spouse ? i think transfer between spouses is free of CGT. So could be a win/win situation.
I could be wrong so perhaps check with a divorce solicitor .

Beaver

11:44 AM, 27th August 2020
About a month ago

Reply to the comment left by Gameplan at 26/08/2020 - 19:01
You need to be a bit careful here: If you transfer assets between the two of you whilst still married they may not be subject to any taxes, but the BTL properties will no doubt be mortgaged and you would probably have to pay stamp duty on the mortgage element depending upon when the transfer happened. I'd look at that sooner rather than later if I were you because there is a stamp duty holiday up to a certain limit at the moment.

If you make one of your properties your main home and then eventually sell then you could be liable for CGT in proportion to the amount of time you rented the home out vs. the amount of time it was your principle private residence, unless you are able to incorporate. Clearly if your wife is staying in your present principle private residence that would have to be factored into any divorce settlement.

Clearly the outcome will be better, and cheaper for both you and your wife if you are able to agree something that's good for both of you.

For example if your total borrowings on the BTLs were below the level at which stamp duty would presently be payable then one possible course of action would be to transfer the BTL into joint names, or your wife to mortgage your present residence to enable you to buy something else, incorporate the BTL business as a limited company, then split the ownership of the company in a way that was equitable taking account of the split of your principle private residence and any other relevant assets, e.g. pensions.

I wish you good luck and would suggest that you persuade your wife if possible to come to an amicable agreement and get some professional advice on tax for both your benefit, and hers.

Paul Hawkins

16:26 PM, 27th August 2020
About a month ago

Reply to the comment left by Neil Patterson at 26/08/2020 - 09:09
Thank you Neil, I will research following the links supplied.

Paul Hawkins

16:27 PM, 27th August 2020
About a month ago

Reply to the comment left by Mark Smith (Barrister-At-Law) at 26/08/2020 - 10:17
Thank you Mark. I will read through the information provided in your link

Paul Hawkins

16:29 PM, 27th August 2020
About a month ago

Reply to the comment left by Gameplan at 26/08/2020 - 19:01
Hi Gameplan,

I think sale of properties will be inevitable in order to fund 2 independent households following divorce.

Paul Hawkins

16:33 PM, 27th August 2020
About a month ago

Reply to the comment left by Beaver at 27/08/2020 - 11:44
Beaver,
Thanks for your detailed respose.
Yes, ultimately an amicable agreement that serves both our interests would be the most favourable outcome . . . .

However, divorce settlements from what I gather often get messy, and one party or more can end up loosing sight of the end game in order to point score against the other.

Thanks again for your contribution.


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