My wife suddenly walked out of the marriage in late February, not leaving time to transfer equity in the tax year. We are partners in two properties and she has one solely in her name and I have six. The joint ones are mortgaged; three of mine are fully paid and so is hers. The two joint owned properties are blocks of ten and twelve respectively. I am deeply worried that any settlement of our assets is going to cause a tax bill that was never planned for and fear it could wipe out the property business leaving both of us with a greatly reduced income. I have no problem with our separation and no divorce proceedings have been initiated by either of us. I have no issues with dividing the properties into equal shares but I do have issues with having to pay capital gains tax (CGT) that was never planned and so budgeted for. Two of the paid-for properties we lived in as our principal private residence for a number of years, and another for about a month, which is mortgaged. How could this situation be best managed so that CGT isn't an issue?

Arthur Weller replies:
You are referring to the CGT rule that if a transfer is made between a husband and wife in a tax year in which they were living together for at least part of the year, then it is ‘no gain, no loss’, and no CGT is charged on the transfer. But if the transfer takes place in a year in which they are permanently separated, then it is deemed to take place at current market value, and if this is more than acquisition value there will be a CGT charge. See HMRC’s Capital Gains manual at CG22500. If you wait to make any transfers between you until after the decree absolute, and the transfers are not made under a court order, the sale price agreed between you will be used for the CGT computation, unless it differs substantially from the expected market value, in which case market value will be substituted. See HMRC’s guidance at CG22505. So, it seems that you cannot escape too much from current market value. If possible, maybe your wife would consider getting back together with you for a short time in the current tax year, for the sake of saving tax, so that the first sentence above would apply. If that is out of the question, the CGT relief explained in the Capital Gains manual at CG73000P (‘Relief on exchange of joint interests in land’) may possibly be applied to the two jointly owned properties. This would require professional tax advice