CGT on home long after divorce

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Moolahasker

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Hi,

Let's say Alice and Bob bought a house in 1991, had kids and and paid off the mortgage.

Then they separated and Bob moved out in 2000 and divorce finalised in 2005. As part of the divorce, Bob became owner of 40% of the house, Alice retained 60% and remained in the house.

Alice then died in 2016 (keeping the numbers easy here) leaving her part of the house to the kids. Bob and the kids wants to sell the house and Bob wants the kids to get the proceeds from his part of the house now instead of waiting for his own passing.

What follows is full of my assumptions, so please feel free to set me straight if I'm assuming wrong.

Say the house was bought in 1991 for 50,000 and was sold for 150,000 in 2016. 40% of that is 60,000, so that's Bobs part of the proceeds. It's made up of 20,000 being 40% of the initial investment, and 40,000 which is gain.

I believe the house value at the time of the divorce and at the time Bob moved out is irrelevant, and that in the eyes of revenue, the only date that the house ceased to be Bobs ppr matters.

So, it was Bobs ppr for 9 years, and not his ppr for 16 years. Revenue computes that Bob is due to pay CGT on a portion of the 40,000, based on those years, so (16 - 1)/25 equals 60%. So, Bob has to pay CGT on 60% of the 40,000 gain, which is 24,000. Then, 33% of that is 8,000.

Bob pays (8,000 - 1,270) of his full 60,000 to revenue and distributes the (52,000 + 1,270) to the kids. The kids also inherit the 80,000 from Alice between them.

Do I have this method of calculation correct, or am I missing something which makes the tax bill bigger or smaller? Does the divorce complicate matters, or the value at the time of the divorce? I realise some detail or agreement in the divorce agreement might confound it, but let's assume not for now.

If Bob needs or wants professional advice on this, what kind of professional does he need? Does he need a solicitor or a tax accountant or something else? Do you have any recommendations for such?

Thanks!
 
Don't rely on a solicitor for this. Try accountant poster @T McGibney on here as you definitely need a professional for this.

I would have thought the value at the time of the divorce matters. Because it is only from then he owns the house as not a PPR, but maybe that works out when you do the 9 years PPR.

You'll also need a solicitor to do the transfer/sale. Is there not someone doing the probate of Alice's estate. And has this not been discussed with them. Also generally solicitors have accountants to do taxes, some solicitors can do taxes but some can get it wrong and that's why you'd need an accountant.
 
A very interesting question which was raised here.

Does a divorced husband have to pay CGT on the sale of his family home because he has not lived in it for 10 years?

A divorced friend of mine has been told by his ex's accountant that he will have to pay CGT on the sale of his family home, as he has not lived in it for 10 years, while the wife lived in it all the time. They have owned they house for 20 years, and as the youngest child is now 24 the house has...
www.askaboutmoney.com

There does not seem to be any exemption for the husband in this case.

Did he buy another house to use as his PPR? In that case, it is clear that the original house would be subject to CGT.

Was the wife a "dependant relative" by any chance? https://parfreymurphy.ie/tax-relief...ivate residence,his / her period of ownership.
 
I am not a tax expert, and you should get an accountant to do the calculation for you. Here is my calculation assuming there is no exemption.

I am assuming that they are selling it this year?

Sold in 2024150,000
Purchased in 199150,000
Indexation1.4
Indexed cost€70,000
Capital Gain€80,000
Bob’s share 40%€32,000
PPR exemption 10/33€9,700
Taxable Gain€22,300
Annual exemption€ 1,270
Taxable Gain

€ 21,000​

CGT at 33%

€6,900​


You made a few errors - and I probably have as well.
1) You are entitled to index the cost as it was bought before 2003.

2) The Annual Exemption of €1,270 reduces the gain, not the tax due.

3) He has owned it for 33 years. Unless he sold it in 2016. But if he sold it in 2016, he would be due to pay penalties and interest for late payment.
 
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You can update the 50000 purchase price using indexation relief up to 2001 or 2002.
Also you can deduct fees for cost of acquiring and disposing before applying capital gains tax.
This will all reduce it somewhat
 
Bob owned 50% of the house for 9 years as his ppr until 2000
He continued to own 50% of the house until 2005. - 5 more years
He then owned 40% of the house until it was sold in 2018 - 13 years

Bought 1991 - €50K (less 50% cost of buying)
Sold 2018 - €150K (less 40% cost of selling)
On a pro-rata basis house increased in value €3700 per year.

So his portion of increase is
5 years * 3700 * 50% plus 13years-1 year * 3700 * 40%
Less 1270
33% tax on that

I did not account for indexiation.

Plus he probably owes revenue interest and fines since he should have paid the CGT in 2018 when the house sold.

He need to engage a tax accountant to get the calculations spot on.
 
There is not nearly enough clarity in the original post for anyone to attempt a CGT calculation, for example whether currency sums quoted refer to Irish Pounds or Euro.
 
Meath Lady said:
You can update the 50000 purchase price using indexation relief up to 2001 or 2002.
Also you can deduct fees for cost of acquiring and disposing before applying capital gains tax.
This will all reduce it somewhat
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He'll have to portion that out in the share he owns it I suppose. An interesting question then is what if it were he who paid the solicitor at the time of acquisition himself and not his wife, but still the fee paid was for 100% so I guess you'd still have to do a %.

This reminds me of a sibling's divorce, and it must apply to a lot of people. If you leave the family home and it's clearly no longer your PPR, say for 5 years until the divorce divides things. And you're ex has to pay you say 50% as part of the settlement, is there CGT on the increase in the 5 years. Something I never thought of before today.
 
Bronte said:
He'll have to portion that out in the share he owns it I suppose. An interesting question then is what if it were he who paid the solicitor at the time of acquisition himself and not his wife, but still the fee paid was for 100% so I guess you'd still have to do a %.
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That's not how it's done.

A part-disposal calculation will need to be done for the 2005 transaction - if indeed that was ever perfected.
 
Brendan Burgess said:
It's unclear to me if the house has been sold. You need to clarify this first. My calculations are based on the fact that your first statement is correct "they want to sell the house" so 2024.
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He clearly made an error in saying it was sold in 2016, it hasn't been sold yet, he put in 2016 instead of 2024.
 
T McGibney said:
That's not how it's done.

A part-disposal calculation will need to be done for the 2005 transaction - if indeed that was ever perfected.
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That's very complicated. How does it work, using the figures he supplied us and assuming it's all euro's.
 
Bronte said:
That's very complicated. How does it work, using the figures he supplied us and assuming it's all euro's.
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It is indeed very complicated. It would take me at least half the morning to do what you ask. And there is no mention of what the open market value was in 2005, so you're asking the impossible of me.
 
So in 2005 when his ownership changed from 50% to a new ownership of 40%, that event should have triggered a CGT payment on the 50% over the 5 years it was not his ppr?

It makes sense as he would need a current market value at the time of transfer.
 
T McGibney said:
It is indeed very complicated. It would take me at least half the morning to do what you ask. And there is no mention of what the open market value was in 2005, so you're asking the impossible of me.
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Would you not also need the value for 2000, seeing as it wasn't his PPR from then either. I was only curious how it worked. It must be something that comes up regularly nowadays as divorce is much more common. It's surprising revenue doesn't have a worked example.
 
Bronte said:
Would you not also need the value for 2000, seeing as it wasn't his PPR from then either.
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No. There was no disposal in 2000.
Bronte said:
It must be something that comes up regularly nowadays as divorce is much more common.
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I have only dealt with one similar case. Relatively recently at that. And there were bizarre circumstances in that case.
Bronte said:
It's surprising revenue doesn't have a worked example.
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Are there none in the relevant Tax & Duty Manual?
 
T McGibney said:
That's not how it's done.

A part-disposal calculation will need to be done for the 2005 transaction - if indeed that was ever perfected.
Click to expand...

Clamball said:
So in 2005 when his ownership changed from 50% to a new ownership of 40%, that event should have triggered a CGT payment on the 50% over the 5 years it was not his ppr?
Click to expand...

Moolahasker said:
As part of the divorce, Bob became owner of 40% of the house, Alice retained 60% and remained in the house.
Click to expand...

A property was owned 50/50 (assuming).

A court ordered Bob to transfer a portion of his ownership to Alice in 2005 pursuant to the divorce (assuming).

A part-disposal calculation does not arise for Bob in 2005 (unless the transfer wasn't pursuant to a separation agreement or decree of divorce).

A chargeable gain or allowable loss does not arise in 2005 for Bob (assuming the transfer was pursuant to the terms of the divorce).

The CGT treatment of the 2005 transaction is No Gain/No Loss.

Transfer of assets and property between former partners

This page outlines the tax implications of separation, divorce and annulment
www.revenue.ie www.revenue.ie

The Tax & Duty Manual relating to transfer of assets in the case of divorced persons is being updated (and not accessible) but the same principles apply as per the manual dealing with separated spouses.
 
AAAContributor said:
A property was owned 50/50 (assuming).

A court ordered Bob to transfer a portion of his ownership to Alice in 2005 pursuant to the divorce (assuming).

A part-disposal calculation does not arise for Bob in 2005 (unless the transfer wasn't pursuant to a separation agreement or decree of divorce).

A chargeable gain or allowable loss does not arise in 2005 for Bob (assuming the transfer was pursuant to the terms of the divorce).

Transfer of assets and property between former partners

This page outlines the tax implications of separation, divorce and annulment
www.revenue.ie www.revenue.ie

The Tax & Duty Manual relating to transfer of assets in the case of divorced persons is being updated (and not accessible) but the same principles apply as per the manual dealing with separated spouses.
Click to expand...
No mention of any court order though.
 
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