Did you know that transferring property to or from your partner attracts capital gains tax?
For tax purposes a transfer between cohabitants is the same as a sale on the open market and attracts CGT in the same way – at 18% on profit; furthermore married couples lose their exemption from CGT liability if they are deemed by the revenue to be separated; a separated couple might still be living under the same roof. That means that if you separate, an investment property that is in joint names attracts CGT if transferred to one of you. If it is in your partner’s name, your partner will have to pay CGT on a transfer to you, and may refuse to do so unless you agree to pick up the tax bill for it.
This does not apply to your main home as the principal residence exemption applies.
If you are husband and wife, or have entered into a civil partnership, you are exempt from paying CGT on inter spouse transfers while you are living together and in the tax year of separation. If you separate but do not divide your assets immediately, you could be left facing a large CGT bill.
What should you do?
- If you are married and are thinking of separating, ensure you transfer any properties or investment assets to your spouse in the tax year of separation and take early advice on your legal position from a specialist family law solicitor.
- If you are cohabiting and planning to buy investment properties in your partner’s sole name or jointly, bear in mind that any future transfers between you will attract CGT. Consider making a cohabitation agreement setting out how the assets should be divided on separation. You can then consider the tax repercussions – how to limit them and who should pay the tax – before it is too late to do anything about it.
For advice on the tax consequences of a divorce/separation, and on all aspects of family law contact Beth Woodward, a specialist family law solicitor at Neves, at beth.woodward@neves-solicitors.co.uk or via the link above.
