Will Selling My Share of Our Former House to My Ex-Husband Cost Me in Taxes?

Understanding the financial ins and outs of selling property can be a headache, especially after a relationship change. Replying to a reader’s question, The Guardian covered what you need to know if you’re thinking of selling your share of a house to an ex-partner.

The Situation: Selling to an Ex

Let’s paint a picture: Imagine you and your ex-husband owned a home together. Now that you’ve parted ways, he’s in a position to buy out your half of the property. Everything seems straightforward until you wonder, “Wait, do I have to pay tax on this?”

The Tax Basics: Capital Gains Tax (CGT)

Firstly, whenever you sell a property that’s not your main home (like a rental property), there’s a tax called Capital Gains Tax (CGT) that might come into play. This tax is on the profit (or ‘gain’) you make from the sale. However, when it comes to selling a house you’ve lived in – like a marital home – things can be a bit different.

Private Residence Relief

Luckily, if you’re selling a home you’ve lived in, you often get something called ‘private residence relief’. This means you typically won’t have to pay CGT. So if you’re selling your marital home, it’s likely you’ll benefit from this relief.

Selling to a Current or Ex-Partner

If you’re selling your share of the property to your ex-husband during a tax year in which you both shared the house for even just a bit, there’s more good news. There’s no CGT to pay. This is thanks to the ‘no gain/no loss’ rules for spouses and those in civil partnerships. It’s a nice little break that makes asset transfers between partners tax-free.

New Rules to Consider

However, as of 6 April 2023, there have been some tweaks in the rules. If you’ve separated from your partner:

  • You can transfer assets between each other without facing CGT until the end of the third tax year after the year you separated. If you divorce or get a formal separation order before then, that becomes the deadline instead.
  • After this period, if you have a formal separation agreement or a divorce order, any asset transfers remain free from CGT. But without one of these formal agreements, selling your share might come with a tax bill.

Getting Expert Advice

The whole matter can be a bit of a maze. Even the government, in its guide on divorce, acknowledges that these tax rules can be complex. If you’re unsure about your situation, it’s wise to get in touch with HM Revenue and Customs or consult a tax professional to guide you through.

In Summary

Separating assets after a relationship ends can be tricky, and the tax implications are just one piece of the puzzle. If you’re in a similar boat, understanding these basics is a good starting point. But remember, when in doubt, it’s always best to get some expert advice.