Divorcing?
The Family Home:
Don’t let the changes to CGT mean you pay more tax!
Divorcing couples are you aware of the change to Capital Gains Tax (GCT) rules on Private Residence Relief?
Tax consideration are never top of the list when a relationship ends, yet the tax consequences can be far reaching. The family home is often the biggest asset when couples divorce. However, the value is often not rapidly realised for many reasons. For divorcing couples the reduction in the CGT final period exemption for property disposal after 6 April 2020 could have a considerable impact.
Currently if you sell a property that has been your main you will not be charged capital gains tax. If you move and haven’t sold your home there is an 18 month grace period to enable you to sell and realise the money. The grace period is known as Private Residence Relief.
From April the grace period will reduce to 9 months, giving less time to sell before a CGT charge could arise. For a higher rate tax payer this could be as much as 28%. Another change is that the time allowed for reporting a gain and paying CGT will reduce to 30 days from completion
In divorce it’s often the case that one party moves out of the family home whilst the other remains, this can cause an issue later on. There is a concession for divorcing couples which can extend the final period exemption, but only where an interest in the family home is transferred to the other party as part of the overall financial settlement on separation, divorce or dissolution. If transfer takes place outside the final period exemption window, then Private Residence Relief will normally be lost.
Another consideration where one party moves out and buys another home before disposing of their interest in the family home is that they will have to pay higher rates of stamp duty because it will be classed as purchasing an additional property i.e. a second home. Although the additional tax can normally be reclaimed when the sale or transfer of the family home takes place, at a time when money can be tight having to pay out extra tax can have a big impact on cashflow.
When ending a relationship there are many aspects to consider, when emotions are running high it can be useful to have a calm, unconnected third party help you through and highlight everything to be considered, we can be your helping hand.