The Lemon Fool

Currently considering separation and have started discussing possible division of assets. I would really appreciate some help with this, or links to where I can get accurate information. The big ones are our 2 rental properties and his final salary pension.

The rentals have been owned (as joint tenants) and let for nearly 10 years. I have used the CGT calculator at HMRC to estimate CGT:
Value when you sold the property    £820,000 (i.e. today's assumed value based on similar properties)
Minus the value of the property when you acquired it   £560,000
Minus all costs, including improvements   £49,300
Total gain    £210,700
Minus Capital Gains Tax Annual Exempt Amount used   £12,300
Taxable gain   £198,400
£20,270 taxable gain multiplied by 18% tax rate     £3,648.60
£178,130 taxable gain multiplied by 28% tax rate   £49,876.40
Tax to pay   £53,525............. So he would have to give me 50% of this (ie 26,763) to compensate for the CGT I'd have to pay if we sold them right now. Does this seem accurate?

The pension is more of a headache. Our mediator has urged us to engage an actuary, but my spouse doesn't see the need. Instead he has multiplied his anticipated monthly retirement income by his life expectancy, i.e. 18 years. The resulting figure is c. 28% more than the CETV. Rough figures are as follows:
18 years of monthly pension payments* = 1,800,000 (* this is based on him retiring 'today' - he is 67)
CETV = 1,300,000 (i.e. 500,000/28% less than the above calculation. Comments?

My spouse wants to transfer assets to me so that he can retain his entire pension, i.e. his 50% share of the two rental properties, as well as some savings and investments. I would also retain my own private pensions, ISAs etc. So we are trying to find a way of balancing/transferring assets so we end up with equivalent shares of our assets. One of the main issues is the fact that I own mostly concrete financial assets, which could be sold, whereas his future pension is his only major asset.

I'm a bit at sea and my head is swirling with figures. I would be really grateful if you kind people could help me clear the fog!

Sorry to hear about this, it is certainly something on the rise in the last 12 months according to one of my best friends (who is a divorce lawyer!).

One thing that jumps out at me is that you are considering your tax liability should you want to cash in your rental portfolio immediately, which iwould be your decision, but ignoring your husband's tax liability should he wish to do the same with a similar amount of his pension pot (which would be his decision). I would have thought the fair way would be to use the actual value of your assets prior to seperation, or to dispose of them prior to separation and use the realised value.

Does your husbands Pension valuation take into account tax he would pay on the income, or increases with inflation.

Re CGT - you both have an annual allowance if they are in joint names. However if you move into one of your rental properties and then out again you reduce CGT as you get the last 18 months PPR relief, and you can sell them in different tax years to get a full allowance on each one. Your £105k gain on each property over 10 years would be reduced by £10-15k depending upon how long you live there, plus the allowance, meaning an annual gain of £78k. £20k at 18% and 58k at 28% means you could pay circa £20k per property CGT.

I can't see why he would overvalue his pension pot - have you had a CETV in the last 12 months? If not then you can request a new one.

You haven't mentioned children, your age, previous marraiges (or children therefrom) but all these things can impact how you value the split, as securing their financial future has an impact. If either of you were to remarry would you expect the new spouse to inherit over your children, etc?

I think you are being very sensible and using a mediator, as a quick search will show several cases where people have spent hundreds of thousands argueing over much smaller amounts.There is quite a large sum at stake here, pension pots and rental properties already well over £2m, plus presumably your main house, ISAs, your pension, jewellery, artworks, cars, etc etc. At that sort of leel you might decide that £100k makes a lot less difference to your life than the effect of acrimony on any family going forwards.

Best of luck,

Paul

DrFfybes wrote:... However if you move into one of your rental properties and then out again you reduce CGT as you get the last 18 months PPR relief, and you can sell them in different tax years to get a full allowance on each one. ...

I’ve no time to respond fully to what I appreciate is overall a helpful reply but that first part is really somewhat far too broad brush regarding Main Residence Relief.

Anyway, the point of this post is to say the last 18 months was reduced to 9 months (in most circumstances) wef 6 April 2020.

https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2020 Is worth a study but noting From 6 April 2020 the relief available on your disposal has changed. You can find out more information in the Tax when you sell your home guide and the Capital Gains Tax Manual, CG64985.

The “more information” is here:

https://www.gov.uk/tax-sell-home

https://www.gov.uk/hmrc-internal-manual ... al/cg64985

Thank you for these replies. Just a couple of comments:

We do not plan to dispose of either rental property. My husband is planning to sign them over to me, in return for me signing over my share of the marital home. It is our mediator who alerted us to the need to take CGT that will become due at some point into consideration in arriving at its current valuation for the purpose of dividing assets. (I do not plan to live in either property at any time.)

Our mediator also stressed the importance of getting an actuary to value my husband's final salary pension as CETV from pension providers can significantly undervalue retirement benefits, because it assumes the member will leave service on the valuation date and thus will not include things like death in service and survivor benefits. However, I understand that such a valuation would cost several thousand pounds, and he is is dead set against doing this, (a) because of the cost, and (b) because it would delay a final resolution.

I have tried to research these issues online but it's somewhat complicated for a layperson like myself, so I was hoping that there may be someone on this board who has experience or knowledge of this.

Thanks again!

Amaryllis wrote:Currently considering separation and have started discussing possible division of assets. I would really appreciate some help with this, or links to where I can get accurate information. The big ones are our 2 rental properties and his final salary pension.

Noting that he's already potentially at retirement age isn't it your future pension income as well? Presuming it's a defined benefit scheme, they invariably offer spouse's income if the husband is unfortunate enough to die first. A point needing to be checked is whether a separation or divorce forfeits this benefit.

Amaryllis wrote:Thank you for these replies. Just a couple of comments:

We do not plan to dispose of either rental property. My husband is planning to sign them over to me, in return for me signing over my share of the marital home. It is our mediator who alerted us to the need to take CGT that will become due at some point into consideration in arriving at its current valuation for the purpose of dividing assets. (I do not plan to live in either property at any time.)

Our mediator also stressed the importance of getting an actuary to value my husband's final salary pension as CETV from pension providers can significantly undervalue retirement benefits, because it assumes the member will leave service on the valuation date and thus will not include things like death in service and survivor benefits. However, I understand that such a valuation would cost several thousand pounds, and he is is dead set against doing this, (a) because of the cost, and (b) because it would delay a final resolution.

I have tried to research these issues online but it's somewhat complicated for a layperson like myself, so I was hoping that there may be someone on this board who has experience or knowledge of this.

Thanks again!

It may be possible to ring fence the deal. Agree that you will go ahead on the basis of the prediction of you husbands pension, but have an opt out clause if the pension exceeds the prediction.

In other words pass the burden of risk back to those trying to impose it upon you.

I'm sorry to hear your relationship has come to an end and I hope you find happiness in the future. You deserve it.

AiY