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?

[CuriousCork]

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 to be sold under the divorce agreement and the proceeds divided 50:50.

My friend had to rent the last 10 years.

Is the ex's accountant right?

 

[DannyBoyD]

Can accountant cite relevant Revenue regs?

 

[AAAContributor]

Is the ex's accountant right?

Yes.

Principal private residence relief for capital gains tax applies to a residence that one owns and occupies as your only, or main, residence:

Principal Private Residence (PPR) Relief

This page outlines Principal Private Residence (PPR) Relief

www.revenue.ie

If your friend has owned the property for 20 years but not occupied the property for 10 years, then 9/20ths* of his share of any gain (less the €1,270 annual exemption) is liable to CGT unfortunately.

*a 12 months grace period is allowed, hence 9/20ths and not 10/20ths.

 

[Horatio]

This is an interesting aspect I had never considered. So in hindsight would the Husband have been better off to relinquish ownership in the then PPR in lieu of other marital assets that he did not want to immediately liquidate?

Trying to figure out how to optimise such a situation.

 

[DannyBoyD]

There are exemptions for some asset transfers on separation / divorce - are we certain that doesn't apply in this case?

 

[AAAContributor]

There are exemptions for some asset transfers on separation / divorce - are we certain that doesn't apply in this case?

This is not an asset transfer from one spouse to another:

the house has to be sold under the divorce agreement and the proceeds divided 50:50.

 

[DannyBoyD]

This is not an asset transfer from one spouse to another:

The house could be sold to the resident spouse.

In any event the sale is on foot of a court order following divorce.

IANATE - but I would be surprised if there wasn't an exemption - if I were the OP, I'd do some more digging.

 

[ClubMan]

Is the ex's accountant right?

Even if they are, your friend should get his own independent professional advice as his overall situation may impact any tax due.

 

[Sarenco]

The house could be sold to the resident spouse.

Former spouse - they’re divorced.

In any event the sale is on foot of a court order following divorce.

I don’t see why that’s relevant.

 

[DannyBoyD]

Former spouse - they’re divorced.

I don’t see why that’s relevant.

because it is!

the family home could have been sold when the couple first separated/ divorced and each would have received their equity without any CGT.

but x number of years ago, a judge made the (not unreasonable) order that the children of the marriage would remain in the family home until the youngest finished their education and the property would be sold then.

So essentially the property is to be sold under court order but such sale was deferred for x number of years.

It would be inequitable that the non-resident (former) spouse should be in a less beneficial tax position due to said court order.

Hence my advice to OP to do some more digging.

 

[NoRegretsCoyote]

the family home could have been sold when the couple first separated/ divorced and each would have received their equity without any CGT.

I think this warrants further investigation because AFAIK there various tax rules to ensure that spouses aren't unduly penalised/rewarded by separation or divorce.

but x number of years ago, a judge made the (not unreasonable) order that the children of the marriage would remain in the family home until the youngest finished their education and the property would be sold then.

The husband should also check as to whether he was advised (same solicitor?) that this would be a possibility when the separation order was being agreed.

 

[Sarenco]

the family home could have been sold when the couple first separated/ divorced and each would have received their equity without any CGT.

Well, yes, the house could have been sold at a time when both of the joint owners could have availed of PPR relief.

But it wasn't! So that is irrelevant.

It would be inequitable that the non-resident (former) spouse should be in a less beneficial tax position due to said court order.

What does equity have to do with our tax code?

There is a specific exemption from CGT if a court orders assets to be transferred between former spouses.

That's not what is happening in this case, so that is irrelevant.

You may well be of the view that the portion of the gain accruing to the husband should be exempt from CGT. That doesn't make it so.

 

[DannyBoyD]

What does equity have to do with our tax code?

Definitely the quote of the year....