Capital gains tax and money held by solicitors

[AlanBrendaCelia]

Alan and Brenda are married and are nearing the end of a very long divorce. Brenda moved out of the marital home and Alan now lives there with his new partner Celia.

As part of the divorce settlement, Brenda is supposed to transfer her half of the house to Celia, as the bulk of the money Brenda is getting will come from Celia (the equity from the sale of her house)

Brenda’s solicitors have been stalling for some months, saying that they are concerned that Brenda may be liable for Capital Gains Tax.

Gov.uk says you do not pay CGT when you dispose of your home if:

• you have one home and you’ve lived in it as your main home for all the time you’ve owned it
• you have not let part of it out
• you have not used a part of your home exclusively for business purposes
• the grounds are less than 5,000m2
• you did not buy it just to make a gain

As a layperson with no knowledge of tax laws, my first thought is that it’s Brenda’s only property, there should not be a CGT liability if Brenda sells/transfers her half of the property to Alan and Celia. However, it seems like Brenda’s solicitors have either not thought of seeking advice from a tax expert or are unwilling to do so.

Can anyone give a (non-binding) view re the CGT position?

Lastly, the equity from the sale of Celia’s house is being held by Alan’s solicitors, as the settlement/house transfer was expected to take place some months ago. If Celia had that money in her own bank account, she would have earned a tidy sum in interest in this time. Anyone know if the solicitors will pay Celia any interest on her money that is in their account?

There may be cgt but she will get principal private residence relief for the time she lived in the property meaning only the part of the gain that could have cgt would be from when she moved out until date of transfer.

The cgt allowance for 24/25 is £3k and if the gain for the taxable part is more than that then cgt will be due,

If there is tax she will need to report and pay it within 60 days

Celia should ask her solicitors about interest. I have never received interest from a solicitor to be fair. She could transfer it to her account and back to them bc when necessary. CGT won’t be payable if it’s been her main home. Obviously she’s moved out but I think there is a nine month allowance so should still be covered. She needs to instruct her solicitors to complete the transaction. Ironically the longer it drags out for the more likely it will attract cgt.

Thank you both for your advice, especially about the longer it drags out, the more it will attract CGT.

Celia was initially happy for the money to be held by the solicitor as it was only supposed to ge a couple of weeks, and she was concerned that she would have to be open additional bank accounts because of the risk of only getting £85k if a bank goes bust. I guess Celia is going to have to go and visit some new banks, that’s too much interest to miss out on.