CGT on Divorce Settlement?

CGT on Divorce Settlement?

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Fas1975

Original Poster:

1,785 posts

170 months

Wednesday 22nd December 2010
quotequote all
Dear all, hopefully someone can help. Good friend of mine just received a divorce settlement from the proceeds of a house sale. The house was in her ex husband's name, but she got 50% of the proceeds which was a hair under £45k. She's now in rented accomodation which she pays for out of her salary and she's a teacher on a relatively basic income, so this lump some is the sum total of her assets.

The question is, does she pay CGT on the divorce proceeds? If so, do solicitors handle this or will she need to fill in some kind of return. The only reason she is not asking solicitor is now divorce is finalised and cheque has been cut, any call or interaction with the solicitor is costing money, and they've already hit her with a higher than quoted bill.

Any help, insight or re-direction, greatly appreciated.

Thanks

IanMorewood

4,309 posts

254 months

Wednesday 22nd December 2010
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Assume it was main residence then its usually CGT free.

Fas1975

Original Poster:

1,785 posts

170 months

Wednesday 22nd December 2010
quotequote all
No, this was a house that her husband had bought before marriage, and wasn't their main residence, just a rental property. I know her ex is liable for CGT, but not sure about her.

IanMorewood

4,309 posts

254 months

Wednesday 22nd December 2010
quotequote all
So he owned it and he sold it, all she is doing is benefiting from the money as part of the divorce settlement? His gain his CGT liability I would assume.

Fas1975

Original Poster:

1,785 posts

170 months

Wednesday 22nd December 2010
quotequote all
I honestly don't know that level of detail. All I know is:

1. They had a house together in Berkshire which was in joint names. That house is now in the ex husband's sole name and is not being sold

2. The ex had a house in Birmingham which he's sold and given her 50% of the proceeds, the figure is just under £45k. That house was in his name only.

Beyond that, I know nothing, but can certainly ask

Fas1975

Original Poster:

1,785 posts

170 months

Wednesday 22nd December 2010
quotequote all
IanMorewood said:
So he owned it and he sold it, all she is doing is benefiting from the money as part of the divorce settlement? .
correct. If anyone knows definitively, great. If not, will tell her to just eat the cost and go back to solicitor for professional advice.

Eric Mc

122,689 posts

271 months

Wednesday 22nd December 2010
quotequote all
Fas1975 said:
I honestly don't know that level of detail. All I know is:

1. They had a house together in Berkshire which was in joint names. That house is now in the ex husband's sole name and is not being sold

2. The ex had a house in Birmingham which he's sold and given her 50% of the proceeds, the figure is just under £45k. That house was in his name only.

Beyond that, I know nothing, but can certainly ask
Not her house - not her gain - no CGT to pay for her.

The payment to her is a settlement in a divorce case. It just so happens that her ex has realised the cash from the sale of a rental property he owned solely.
If I was him I would have sold the old family home - completely CGT free - and given her her cash amount from that.

I would then have moved into the former rental property which would have established it as a new main residence and therefore started triggereing some CGT exemption for it for when it was eventually sold.

Fas1975

Original Poster:

1,785 posts

170 months

Wednesday 22nd December 2010
quotequote all
Eric, thank you! That makes a lot of sense. Appreciate it.

Supplementary question. Will the lump sum affect her tax credits? I'm assuming it will and she has to notify the appropriate authorities?

Eric Mc

122,689 posts

271 months

Wednesday 22nd December 2010
quotequote all
Fas1975 said:
Eric, thank you! That makes a lot of sense. Appreciate it.

Supplementary question. Will the lump sum affect her tax credits? I'm assuming it will and she has to notify the appropriate authorities?
I'm not sure about that. Tax Credits are normally based on your earned and investment income in the year i.e. wages, profits from a business, interest from savings, dividends from shares, rental income from a property etc.

One-off settlement figures, compensation, insurance claims, winnings etc would normally be ignored.

Obviously, if she invests the lump sum she has just received in some savings, her interest income will increase so the additional interest income could have an effect on the Tax Credits she is entitled to.


Edited by Eric Mc on Wednesday 22 December 16:28

Fas1975

Original Poster:

1,785 posts

170 months

Wednesday 22nd December 2010
quotequote all
You're a gent. Thank you Eric (and everyone else that replied). Will let her know

Eric Mc

122,689 posts

271 months

Wednesday 22nd December 2010
quotequote all
Get her to check up on the tax credit situation though. It is not my specialist area (it's a whole area all to itself).

Fas1975

Original Poster:

1,785 posts

170 months

Wednesday 22nd December 2010
quotequote all
Eric Mc said:
Get her to check up on the tax credit situation though. It is not my specialist area (it's a whole area all to itself).
Definitely will do. Thank you sir.