Divorcing couples and capital gains tax

Under new rules, if you move out of a home that was your main residence — because of a marriage breakdown, for example — you will have as little as nine months to sell that property without being hit by a capital gains tax bill on any profits. At present you have 18 months to sell your home after moving out before you have to pay a capital gains tax. However, that time period will be reduced to nine months from April 2020.

For example, take a couple who bought a house for £200,000 and lived in it for 10 years. Let’s say they decided to divorce and the husband moves out three years before the property is sold. They sell the property for £400,000 – so £200,000 more than they bought it. If you only have one house and you always live in it for the entire time you own it, then you don’t pay capital gains tax on any gain when you come to sell it. So the wife who has always lived in the property until the sale will get full private residence relief on her gain of £100,000 and will not pay capital gains tax.

However, since the husband has not lived there for three years, he will not get the full relief and will have to pay capital gains tax. The way capital gains tax works is if you only live in the property as your main residence for some of the time you own it, you get relief for a fraction of the gain. So after the exemption period – currently 18 months – you pay tax on the time you didn’t live in the home. If he earns £50,000 a year, under the current rules he would pay tax of £840 as a higher rate taxpayer. Under the new rules from April 2020, he will pay £2,940 so the rule change has cost him £2,100.


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