Tax implications on transfer of property after separation

Question:

I separated from my wife last year. We have agreed a financial settlement and the key points are as follows:

- She is to transfer around £500,000 to me in two instalments to represent the net sale value of the matrimonial home

- I am to transfer to her 3 overseas properties that we own jointly. I'm therefore to sign over my interest in these properties to her

Please can you tell me what the tax implications are. In particular if I sign over the overseas properties to her I won't be liable to any tax when she sells them in the future will I?

Answer:

The fact that the payment is made in two parts is irrelevant. This is a capital payment, and whilst any disposal of the property could have been liable for capital gains tax, Principal Private Residence ('PPR') relief should be available to eliminate any gain in full.

In terms of the overseas properties if your name is not on the deeds and you have no other beneficial interest in the property you would not be liable for CGT on the future disposal. You should however take care as to the tax implications of a transfer of the properties to your ex wife.

A transfer of any asset between a husband and wife who are living together is treated as taking place for such consideration as will give neither a gain nor a loss to the transferor (ie effectively tax free).

The tax legislation states that this nil gain nil loss transfer applies to a disposal in any year of assessment if a husband and wife are living together in that year of assessment. There is no requirement that they should be living together throughout that year. If the couple are living together at some time in a year of assessment assets can be transferred between them at any time in that year of assessment at no gain/no loss.

Therefore whilst a transfer from you to your wife would be free of CGT if it was made in the tax year that you permanently separated, a transfer in a later tax year would be classed as a normal disposal. A husband and wife are connected even if they are permanently separated, and this remains the case until the date of the decree absolute.This would therefore deem any disposal of the properties by you to be made at market value.

As regards your position, unless you permanently separated during the tax year of the transfer, a transfer of an interest in overseas properties to your wife would be chargeable disposal for CGT purposes, and you would then need to calculate the gain arising on the uplift in value from the cost of acquisition to the market value (or a 50% share) at the date of transfer.

About the Author

He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.

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