I’m planning to move in with my new partner before my divorce is finalised. My partner has a large house, which is closer to my children’s school, so it will be practical for all sorts of reasons, which is why I am keen to make the move sooner rather than later. Will this have any financial implications?
Clizia Motterle, a senior associate in the family team at RWK Goodman, a law firm, says your decision to move in with your new partner may have a bearing on your divorce settlement. This doesn’t necessarily mean it is not the right thing to do, but you should be alive to the possible implications.
There are three main aspects to consider. First, if you have not already done so, you need to tell your soon-to-be ex-spouse about your intentions. As part of the divorce negotiations, they may be entitled to be told about your new partner’s financial circumstances, both income and assets. Your partner would not have any obligation to provide disclosure; the obligation would be on you to say what you are aware of their finances, because this could have a bearing on your financial settlement.
Second, you would generally be expected to share household outgoings with your new partner. This would not affect a claim for child maintenance against your children’s other parent, but it is likely to hinder a claim for spousal maintenance.
Third, cohabiting would create an expectation that you will pool financial resources with your new partner. For example, in the context of a future house purchase, your mortgage capacity is likely to be assessed jointly. Both of you would be expected to contribute towards the deposit if you could afford to. In turn, this may mean that you don’t need more than 50 per cent of the equity in your marital home to rehouse, as you perhaps would have done had you planned to live alone with your children.
You should consider your overall situation and how important these aspects are to your case. The key message is to think about all possible implications (legal, practical and financial) before taking the leap. Once you start cohabiting, it would be a difficult situation to unravel, unless your new relationship breaks down.
None of the above is relevant if you are in a new relationship but don’t live with your new partner or do not plan to do so within the next six months.
Finally, if you plan to make any payments towards your partner’s property, especially if you will be paying down the mortgage by using a lump sum your ex-spouse may be paying to you, you should consider protecting that contribution, for example via a declaration of trust.
It may be that your new partner will insist you both sign a cohabitation agreement, which would regulate the sharing of outgoings and generally prevent you from acquiring an interest in the equity in the property, despite you living there and potentially making ongoing financial contributions.
What are the implications for passing a mortgaged rental property to my daughter?
I’ve owned a property since January 2010 that I bought for £500,000. I lived in it until January 2020, but retained the property as a rental. It is now worth £800,000. There is a mortgage on the property of £400,000 which my daughter will take on. I want to gift the property to her. What are the tax implications?
Rowan Morrow-McDade, tax director at Alexander & Co chartered accountants, says this seemingly simple query has a number of complicated tax implications.
First, if you do this you will pay capital gains tax on the difference between what you paid for it and what it will be worth on the date of gift — about £300,000.
However, the gain is partially exempt under private residence relief for the portion of time you lived in the property, plus the final nine months (as that period of time falls under something called “deemed” occupation).
Assuming the house is gifted in June 2025, you will have lived in it for 120 months (Jan 2010 to Jan 2020) over a total ownership period of 186 months. Therefore, of the £300,000 gain, a total of 129 months will be exempt (120 actual occupation plus nine months deemed occupation). Technically, HMRC will want you to do this in days, but I will use months for illustrative purposes.
On my calculations, the exempt part of the gain would be about £208,000 and the chargeable part of the gain would be around £92,000. Then, from the £92,000 you can deduct your £3,000 annual exempt amount, giving a chargeable gain of £89,000. This gain is taxed at 24 per cent for a higher- rate taxpayer, so you would pay £21,360 in CGT.
Note that this tax is payable within 60 days of the gift, so if you choose to do this you will need to have the cash available.
You will also need to consider stamp duty payable on the “chargeable consideration”, which is, in most cases, cash being transferred. (If the property was unmortgaged, the gift would have no stamp duty implications).
However, because your daughter is taking over the mortgage in this instance, the mortgage is deemed to be a chargeable consideration. To explain, the day before the gift you owed £400,000; the day after the gift you owed nothing. So for Stamp Duty purposes, you have in effect been paid £400,000.
Therefore, your daughter will need to pay stamp duty as if she bought a house for £400,000. Assuming this is her first house, she will pay £5,000 of stamp duty payable within 14 days of the gift.
You also need to think about inheritance tax. This gift is considered as a potentially exempt transfer (Pet) — so there will be no IHT to pay as long as you live for more than seven years after giving it.
Our next question
I was due to return to my job in the coming days following maternity leave. As I have been diagnosed with autism, my employer stipulated that I need to be signed off by occupational health to return to work. My employer has moved this appointment five times, delaying my return. Human resources is suggesting that I may not be paid this month, as I am yet to be signed off as fit to return, but OH has caused this delay. I need to be paid as I have a mortgage to pay and a family to support. Can my employer legally withhold my wages in this situation?
The value of the Pet is the equity value in the property, which is £400,000. If you die between three and seven years of making the gift, Taper relief will apply, which reduces the inheritance tax payable.
Let’s say you only have a standard nil rate band available of £325,000, and you have used your £3,000 yearly annual exemptions. On your death, we take the value of the Pet and take off the nil rate band, to give £75,000.
IHT is charged at 40 per cent, so this gives tax payable of £30,000. However, if we assume you pass away between five and six years of making the gift, taper relief would reduce the tax payable by 60 per cent, so £12,000 would be due on your estate.
Note that this tax is payable by the recipient of the gift — in this case your daughter — not the estate of the person who has passed away.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
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