Capital gains on house sale

A friend of mine got divorced some years back (10ish I would think) but they did not sell the house at that time. It stayed in join names but he moved out while she and the children continued to live there.

He subsequently bought his own house where he now lives.

They have now sold the jointly owned house and have agreed to split the proceeds so that he gets 1/3 and she gets 2/3.

He has been told (not sure by who but it would be either a solicitor or accountant) that he has to pay CGT on the whole amount (not just his third, or even on a half). She has no CGT liability as she has lived in the house until it was sold.

Is this right or has my friend been given incorrect advice as it doesn't sound right to me that he is going to have to pay tax on the entire value of something he jointly owns and therefore on money that belongs to his ex-wife?

Reply to
Bert
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No, it doesn't sound right.

Did they own the house jointly (joint tenants) or in shares (tenants in common)? In both cases for tax purposes they owned it in shares, but in the former case the proportion cannot be split other than equally. Did they sever the JT (if they had one) at divorce in favour of a TIC? Did the 1/3 - 2/3 split occur at divorce or by separate agreement on sale?

If the change from 50-50 to 33-66 was deemed to have occurred at divorce, then he should now be taxed on the CGT relating to *his third* of the gain, and assuming the house has been owned for X+10 years (i.e. for X years prior to the divorce plus 10 years after it), then only (10-3)/(X+10) of the gain will be taxable, and there'll be some indexation allowance and

40% taper relief, plus of course his annula CGT exempt amount to come off.

If the change from 50-50 to 33-66 happend just prior to the sale, and then he will instead be liable for CGT relating to *his half* of the gain. To be more precise, he would be liable for a sixth of the gain upon disposal to his ex of the sixth which brings his share down from 50% to

33%, and in addition he would be liable for a third of the gain upon disposal to the buyer. The (10-3)/(X+10) scaling, indexation, taper, and AEA apply to the half as they did to the third in the previous example.
Reply to
Ronald Raygun

Thanks for the detailed reply - very much appreciated. I do not know how they held the house after the divorce, as joint tenants or tenants in common, but your reply will hopefully give him the information he needs to challenge the advice he has been given already.

Reply to
Bert

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