What should I do with a property in the French Alps in my divorce? HEATHER ROGERS replies

My wife is in the process of divorcing me. As well as the family home here in the UK, we also jointly own an apartment in the French Alps. It is owned outright with no mortgage.

Can you please advise what the capital gains tax implications are if the property is sold, and also if I buy her out and keep the property?

Heather Rogers replies: Getting divorced is stressful enough, without worrying about CGT implications.

Transfers between married couples or those in civil partnerships are normally done on a ‘no gain/no loss’ principle and therefore no CGT arises.

However, once you are legally separated, then this rule changes.

I will explain the general position and then deal with the specifics of your question.

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Under rules in place until 6 April 2023, the transfer period for assets at ‘no gain/no loss’ from one spouse to another was restricted to the end of the tax year in which the couple separated. 

This did not give them much time to sort out matters.

Since that date, more flexible rules came into play which give couples a longer period of time, removing the pressure when making decisions about these issues.

For CGT purposes, you are separated from your spouse or civil partner if it is:

– By a court order/formal deed of separation

– In such circumstances that the separation is likely to be permanent.

If you are neither married, or in a civil partnership, then you cannot transfer assets between you under the ‘no gain/no loss’ rules.

What are the CGT rules if you get divorced?

1. For disposals on or after 6 April 2023 the separating spouses/civil partners will be given up to three years, after the year of separation, to make ‘no gain/no loss’ transfers of assets.

2. Couples also get unlimited time to transfer assets, when those assets are subject to a formal divorce agreement.

In other words, please take note – it is important to strike a financial deal with your ex and get it signed off by the court at the same time as you divorce or legally separate, if you want this leeway.

Where assets are transferred as part of a formal divorce (or court separation) agreement, there is no time limit applied to ‘no gain no loss’ treatment of asset transfers. 

It means that, for those assets, no CGT will be payable even if they are made outside the three-year period.

But if the couple divorces (or becomes legally separated by court order) before the end of the three-year period, ‘no gain no loss’ treatment will end at the date the divorce is finalised. 

That is, unless the transfer of assets takes place as part of a formal divorce (or court separation) agreement.

3. A spouse or civil partner who retains an interest in the former matrimonial home will have the option to claim Private Residence Relief when it is sold.

4. Individuals who have transferred their interest in the former matrimonial home to their ex-spouse or civil partner, and are entitled to receive a percentage of the proceeds when that home is eventually sold, will be able to apply the same tax treatment on the receipt of those proceeds that applied when they transferred their original interest in the home to their ex-spouse or civil partner.

Meanwhile, CGT can still arise within the allowed period:

– If to raise cash, a property or other asset is sold to a third party, in which case normal CGT rules would apply;

– Or if a sale occurs overseas, where rules may be different and tax may be payable.

What about your situation?

Selling up

If you sell your French apartment, you will need to report the gain both in France, to its tax authorities under its tax rules, and in the UK to HMRC under our tax rules.

HMRC has agreements with other jurisdictions regarding tax matters, and so it will be notified of the disposal.

There is a double taxation agreement with France, so you will receive credit for any capital gains tax paid in France.

As the property is in joint names, then the gain would be split between you and your wife and, if not used elsewhere, then each of you could use your own £3,000 capital gains tax allowance to offset against your gains arising under UK rules.

You can report your gain in the UK here.

You will not need to report the sale of the property or pay CGT via the Capital Gains Tax Property Disposal Scheme within 60 days of completion.

This is because, although the property is residential, it is abroad and therefore out of the scope of this legislation.

It will just need to be reported to HMRC by 31 December following the end of the tax year in which the disposal takes place, and any tax due must be paid by 31 January.

Buying out

If you decide to buy your wife out, then the transfer of her share of the property to you would not be subject to CGT. 

That is because the property would be transferred on a no gain/no loss principle under the new rules explained above.

To recap, the transaction should take place within three years of the end of the tax year in which the separation occurred, or before the date the divorce is finalised if is before the end of that three-year period. The time limit is waived if it is part of a formal divorce agreement or court order.

Whatever you might end up actually paying your wife to buy out the apartment, under ‘no gain/no loss’ property is transferred to a spouse/divorcing spouse at its base cost – in other words, the price originally paid for the property, or their share of that cost.

When you sell the property, you will be responsible for the CGT arising on the original cost, as that is the cost you acquired it for. 

You will be able to deduct the original price paid for the property, the cost of improvements and acquisition and disposal costs.

Getting help

Take advice from either your solicitor or a good accountant prior to making any final decisions.

If you need assistance with your tax affairs then here is my guide to finding a good accountant.

You may need assistance in France as they have different rules, but your Notaire (similar to a solicitor) who would deal with the property sale would most likely be able to assist in such matters.