CG65356 - Private residence relief: separation, divorce or dissolution of civil partnership: spouse or civil partner transferring interest

After a spouse or civil partner has moved out of the matrimonial or civil partnership home on separation, divorce or dissolution of the civil partnership, the individual may transfer his or her interest in that residence to the other spouse or civil partner as part of the settlement on divorce or dissolution. The transfer may be ordered by the Court or may be voluntary. The transfer is a disposal for Capital Gains Tax and a gain may accrue.

If the period between moving out of the matrimonial or civil partnership home and the transfer is longer than the final period exemption (see CG64985+) the gain will not qualify for full relief. So a charge to tax could arise at a time when funds are least likely to be available. The charge can be mitigated in appropriate cases by s225B TCGA92 for disposals on or after 6 April 2009. For disposals made prior to 6 April 2009, ESC D6 applies.

S225B TCGA92 operates by deeming a dwelling-house to be the only or main residence for a specified period. The individual must make a claim for s225B TCGA92 to apply.

S225B TCGA92 allows the former matrimonial or civil partnership home to be treated as the only or main residence of the transferring spouse or civil partner from the date his or her occupation ceased until the earlier of:

  • the date of transfer

and

  • the date on which the property ceases to be the only or main residence of the spouse or civil partner to whom the property is transferred.

If the transferring spouse or civil partner has acquired another residence, it may be disadvantageous for a claim to be made for s225B TCGA92 to apply. You can only allow relief on one residence for the same period and if relief is given on the former matrimonial or civil partnership home it will be lost on the other residence.

Example

Mr & Mrs B jointly bought a house in May 2012 for £50,000. It was occupied as their only or main residence from July 2014 until they separated in November 2016. Mrs B continued to reside in the house while Mr B left the house and bought a new house in December 2016 which he occupied as a residence.

The couple were divorced in January 2021. In May 2021 the Court ordered Mr B to transfer his half share in the matrimonial home to Mrs B. The interest was conveyed to her in July 2021.

To compute the gain accruing to Mr B you need the market value of a half share in the matrimonial home in May 2021, see CG22505. The valuation of Mr B’s half share will reflect that he and Mrs B are not connected parties, and that Mrs B as owner of the other half share is in occupation. CG74300 explains how to obtain this valuation from the Valuation Office Agency.

The Valuation Office Agency tells you that the value of the entirety with vacant possession in May 2021 was £150,000, and that the half share is worth £63,750.

Mr B’s gain is computed as follows:

  £  
     
  Disposal proceeds 63,750
less Cost 1/2 x 50,000 25,000
  Net gain 38,750

Private residence relief:

  • Period of ownership is May 2012 - May 2021 = 109 months

  • Period of only or main residence is July 2014 - May 2021 = 83 months

The relief is 83 /109 x £38,750 = £29,507

The chargeable gain is £9,243 (£38,750 - £29,507) subject to the annual exempt amount.

A claim for s225B TCGA92 to apply may not be to Mr B’s advantage. Mr B would obtain increased relief on the transfer of his interest in the matrimonial home but would lose relief on his new home for the period between December 2016 and May 2021.