In some divorces, then FMH will have to be sold. In other cases, one spouse transfers his or her interest to the other spouse, who remains in the property.
It is an article of faith that there will be no capital gains tax payable when one sells one’s home, thanks to the principal private residence exemption (PPR).
Traditionally one has been granted an extension of the
I did just wonder whether
This will certainly not be helpful in divorces involving couples where the marriage has been lengthy and they have benefited from the long term rise in property prices.
So what is the problem?
The layman will often not appreciate the significance of this. The thought will be that there would not necessarily be that much growth in the value of the property from the date of separation until such time as the parties go through the divorce process and establish the fate of the FMH and if it is to be sold or transferred to one of the two parties.
Let us assume that the property is subsequently sold. Let us assume that the whole period of ownership is 25 years. Let us assume that separation took place after 20 years. Let us assume that the property grew in value by £300,000 from the date of acquisition to the date it ceased to be the FMH. The gain is treated as arising over the whole of the period of ownership (25 years)
Leaving aside issues such as the annual exemption and letting relief, the gain of £300,000 is allocated over the whole 25 years, resulting in a gain of £12k for each year. We
Steps can be taken to avoid this sort of situation. What is clear though is that any problems with the FMH and capital gains tax are exacerbated by the Chancellor’s announcement. Exposure to CGT on the FMH needs to be looked at early on in divorce proceedings so that any remedial action can be implemented rather than the parties be confronted by a fait accompli.
We provide capital gains tax computations for our friends in Family Departments. We also look at SDLT as another emerging pernicious problem but we also aim to come up with solutions to mitigate or eliminate any potential CGT exposure with regard to the FMH.
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The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.