Apologies, this feels like something a reasonably intelligent human should be able to work out, but it’s all still a bit emotionally raw and I keep getting lost.
In March 2021 my unmarried partner and I bought a flat for £625k. They put down the full £250k deposit. I offered tenants in common, they chose joint tenancy. We made (very) unequal mortgage/bills contributions. The flat recently had a remortgage valuation at 675k and there’s 500k in equity.
We have separated. They’ve offered an £80k buy out. Based on actual financial contributions and informal legal advice, I am happy this sum is reasonable.
However, as someone who has always had simple PAYE arrangements, I’m not sure what the tax implications are.
I (now) earn £58k and salary sacrifice AVCs to bring this down below the higher rate threshold. I have c. £90k in savings: £60k already in various ISAs plus £30k in an easy access account.
The plan (eventually) is to use flat money + savings to buy a new place, but I’m trying to relocate so need to get a new job first.
Questions I have:
- Will the 80k from the flat buyout be treated as income? Will I need to do a self-assessment this year?
- Are there any legal/tax implications of ‘selling’ ‘my’ £250k share for £80k?
- My parents gave me £20k to go towards a house 15+ years ago (my sister was buying). Can I give them an inflation-adjusted share (c.40k) as ‘their’ money back, which they can regift me when I am ready to buy? This is a blatant tax dodge (getting them to hold the money in an ISA rather than me), but is it an allowable one?
- Are these sort of sums worth going to an IFA for?
In the grand scheme of things I know paying tax on savings income is not the worst situation to be in, but I was caught out by being offered a job before the end of my PhD, missed moving (most of) the 30k into an ISA and have been stung with a unexpected ‘untaxed income’ bill this year. That plus heartbreak and stamp duty for a house move I don’t want to make has made me a bit more miserly. Last year I got a free IFA session through work, but it seems to have been replaced with an online portal :(.
Thank you!
As long as it was your only or main home, and it is no longer than 9 months since you moved out then there is no tax. Private residence relief covers any gain.
There's no income here. So ignore that.
It's a capital gain. So you'd usually pay capital gains tax on the gain (difference in buy to sell price). But...has this been both of your primary homes? If so there would be no GCT to pay.
What is very messy is the non written agreement in how you split this. However this will be easy for your solicitor to advise how to do it as the tax implications should be very simple if you both primary lived there and are not very old... You can likely just gift her the amount you deem fair even though you own legally more
I am well aware of the irony of me suggesting we should be tenants in common to protect his financial interests and him insisting we should be joint tenants because he loved me and trusted me and it ending up being him initiating the breakup and me potentially getting a less generous settlement than we might have agreed, but I wasn't with him for the money and I am not interested in a legal battle where only the lawyers win, so it is what it is. I will rebuild.
If you are joint tenants you are legally entitled to half of the equity and there’s nowt he can do about it.
Not really. There are various bits of case law where this has not been found to stand when there have been substantially different contributions and no marriage.
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!thanksin a reply to them. Points are shown as the user flair by their username.It’s not income, the consideration will be whether its a capital gain tax relevant. If you don’t own other properties and lived at this address as you home until recently then it will be exempt from Capital Gains Tax.
Gifting your parents money isn’t illegal, but it’s a poor idea. While I’m sure you trust them completely you would have no legal right to that money. If unfortunately they died that money would become part of their estate and there might be inheritance tax, if they got divorced and married Greek waitress/waiters then died your money might be gone. Don’t do it, you aren’t a kid, look after your own money even if that means tax.
If OP was just gifting money to her parents, that would be perfectly legal. But it doesn't sound like a gift - it sounds as though her intention is that they will hold the money in ISAs, utilising their own tax allowances, and then transfer the money back to her when she wants it. Put another way, OP wants the parents to hold the money on trust for her. If the parents really do consider the £40k to be OP's money throughout, then they'd be committing tax fraud if they kept it in an ISA. The whole point of ISAs is that they're individual savings plans, and you're not allowed to hold other people's money in them.
(I make no comment whatsoever about how likely OP and her parents are to be caught if they went ahead. But that doesn't change the fact that the plan as stated isn't just "a blatent tax dodge"; it's illegal. OTOH if OP were to make a gift to her parents with the intention that they would keep the money for themselves, and the parents were to entirely coincidentally make a gift to her later, that would be fine. But in the meantime, as you say the money would belong to the parents for absolutely all purposes, and making a gift of it later might cause issues with benefits, or inheritance tax, or deprivation of capital, or many other things.)
It’s not income. It is a capital gain but since it was your principal private residence there is 100% relief against the (tiny) tax liability that this would have generated.
You probably should each have your own conveyancing agent to effect the transfer and I’m guessing your ex-partner has already checked that her mortgage lender will agree the Change of Parties on the mortgage and that she passes their affordability criteria in her own. You need to ensure you don’t agree the transfer of title taking you off the deeds in advance of the Change of Parties being effected, but that’s what you’ll be paying the conveyancing agent to ensure is done correctly.
I wouldn’t worry about an IFA especially if the intention is to use the funds as a deposit for your own purchase fairly soon.
I also wouldn’t be gifting back and forth with family members to dodge tax on interest in their ISAs for a year or two, but that would be a choice.
!thanks
Since we are in agreement on the sums I was hoping to get away with just him (I am the her) paying for the solicitor for the 'selling' since I'll be paying for a solicitor for the eventual buying, but it sounds like I might need to get one for this one. He has appointed one but I've not heard from them yet, so I'll add that to the to-do list in January.
And yes, we've spoken to the mortgage provider and he passes affordability and they are happy to transfer just to him once the deeds are all sorted.
For assets/payments of these amounts, it's well worth taking your own independent legal advice.
Don't take legal advice from the other side, they are not required to act in your interests.
Cheers. I am fortunate enough to have friends with highly specialist legal knowledge in this area. They cannot formally represent me and they cannot formally advise me (and I would not be able to afford them if they did), but having gone through the contributions made and recent case law their opinion was the settlement was at the lower end of what might be expected in a case like this, but not so far at the lower end that they would confidently recommend litigation. Plus I don't want to: I've left no financially worse off than I arrived and I'd rather leave with my head held high than known as the one who rinsed him for every penny she could get.
Realistically a solicitor at my end will just be checking that his solicitor has done the paperwork properly, but it's sounding like that might be worthwhile anyway.
You need some proper legal as one before accepting this offer !