CGT on sale of house owned with ex wife

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frugan

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A neighbour of mine has a distantly related cousin who has a theoretical tax question. Suppose a person is divorced and jointly owns two properties with his ex wife: a rental property and the family home where his ex wife now resides. The gentleman was paying spousal maintenance, child maintenance and covering the cost of both mortgages. After becoming unemployed and falling into arrears of maintenance the court ordered that the rental property be sold and the following sums were to be deducted from the proceeds:
1) the mortgage currently outstanding on the rental property
2) the mortgage on the family home in which the ex wife lives
3) a sum of money to capitalise child maintenance and cover arrears of spousal maintenance

Following the discharge of those sums the gentleman is entitled to the balance of funds from the property sale.

As far as I can make out both parties own the rental property 50% so CGT (which is significant as the house was sold at 405K and bought for 150K) would be chargeable 50% to the ex wife and 50% to the gentlemen in question.

Any alternative interpretations on how revenue might view this transaction? My neighbours cousin would appreciate any feedback on the matter.
 
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frugan said:
Any alternative interpretations on how revenue might view this transaction?
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That's beside the point, as CGT operates on a self-assessment basis. There is a disposal yielding a capital gain for the joint owners. They will accordingly have to file CGT returns and pay their respective CGT liabilities within allotted timeframes which depend on the disposal date.

As above, professional tax advice and assistance is recommended.
 
what if it were not a theoretical exercise would you be more inclined to opine then? I can fill in all the variables and unknowns...
Obviously I appreciate the suggestion to get professional advice and may very well do that but though it would be worth a shot to post it here. I have been filing my own taxes for years and have ~20 years experience working in finance (though not tax specifically). Any suggestions on where I would research further in terms of legislation or tax publications?
 
The CGT issues are completely separate from what the owners do with the proceeds of the sale so all of this is basically irrelevant:
frugan said:
The gentleman was paying spousal maintenance, child maintenance and covering the cost of both mortgages. After becoming unemployed and falling into arrears of maintenance the court ordered that the rental property be sold and the following sums were to be deducted from the proceeds:
1) the mortgage currently outstanding on the rental property
2) the mortgage on the family home in which the ex wife lives
3) a sum of money to capitalise child maintenance and cover arrears of spousal maintenance

Following the discharge of those sums the gentleman is entitled to the balance of funds from the property sale
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The fact that you/they presumably thought that it was relevant reinforces my (already strong) opinion that independent professional tax advice is merited rather than a potentially error prone and costly DIY approach.
 
thanks ClubMan. For clarity regarding the ownership: both houses (the family home and the rental property) are in joint names and the original divorce agreement stipulated that "the gentleman" would pay off both mortgages and that when both mortgages were clear the ex wife would have a sole interest in the family home and the gentleman would have sole interest in the rental property. The court order subsequent to this orders the sale of the rental property and the split of the proceeds. It seems the ex wife might end up with a significant tax burden after all so this is not displeasing to the gentleman.
 
Cruzer123 said:
Sounds like he’s getting royally shafted.
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Impossible to say without knowledge of all of the facts. E.g. the man could have huge resources compared to the woman so the arrangement regarding clearing the two mortgages could well be a reasonable/fair quid pro quo regarding division of the assets. Especially if, as is still common, the woman was the main home maker/child rearer in the marriage etc.
frugan said:
For clarity regarding the ownership: both houses (the family home and the rental property) are in joint names
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This is relevant to the key CGT question but there's still insufficient information to offer specific feedback on how their respective liabilities might be calculated.

FWIW:

What do you pay CGT on?

This page is an explanation of what assets CGT is paid on, includes compensation and insurance money
www.revenue.ie www.revenue.ie

Jointly owned assets​

If you dispose of an asset that you jointly own, you only pay CGT on your share of the gain.
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Thanks again Clubman any other specific information I could share? She does not work, never has - the gentleman worked and had a high income. He also reasoned that he would rather pay his ex wife than a bunch of barristers and solicitors so agreed to these terms during mediation.

Also thanks Cruzer123 the gentleman solicitor has just been contacted to suggest clearing CGT before funds are distributed.
 
frugan said:
Also thanks Cruzer123 the gentleman solicitor has just been contacted to suggest clearing CGT before funds are distributed.
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If he's a solicitor, especially if he's ever done conveyancing, then he's surely aware of the basics of CGT and how it applies in a case such as this?
frugan said:
She does not work, never has - the gentleman worked and had a high income. He also reasoned that he would rather pay his ex wife than a bunch of barristers and solicitors so agreed to these terms during mediation.
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I don't really understand but all of this seems irrelevant to the key question about CGT.
frugan said:
Thanks again Clubman any other specific information I could share?
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Full details about the properties, details of beneficial ownership (whose names are on the respective deeds and what is the ownership split - it's assumed to be 50:50 but maybe it's not?), dates of acquisition and disposal, history of ownership and PPR occupation, acquisition costs, allowable expenses, selling prices etc...
 
Surprisingly the solicitor (who is doing the conveyancing and acting for both parties to enforce the court ordered sale) seemed quite unfamiliar with how the CGT would work. She suggested as you did Clubman to get professional advice. Both names are on both properties and the ownership is 50/50. Date of acquisition of the rental property was in 2014 the family home was in 2006. The rental property has not been occupied by either party as a PPR but rented all this time. Selling price is 405 auctioneers and solicitors fees will be roughly 5K each.

I have outlined the split of proceeds as I see them in the attached. But I imagine revenue could have a different view of the matter. Perhaps I will put in an enquiry to ROS with the attached and see what they say to me?
 

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  • cgt.xlsx
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Revenue are not in the business of giving tax advice - they give out information but even that is sometimes incorrect.
And acting on incorrect/inappropriate information that they give out will not be accepted as a valid excuse for an incorrect tax return.
You/they really need to get professional advice on this matter given the sums involved.
 
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