CG65334 - Private residence relief: separation, divorce or dissolution of civil partnership: effect of court action

If the court recognises an existing equitable interest, there is no disposal from the spouse or civil partner with the legal title to the spouse or civil partner with the equitable interest. The Court recognises that interest, it does not create it. The beneficial ownership is not altered.

If the Court orders provision for a spouse or a civil partner out of the sale proceeds of the house, the Court has not created or recognised an interest in that house but has only made an order for financial assistance. The beneficial ownership is not altered. This is illustrated by the example shown below.

If the Court orders a transfer of the home, to the spouse or to the civil partner or into trust, there is a disposal of an interest by the spouse or civil partner ordered to make the transfer. The Court has created an interest rather than recognising an existing interest. Moreover, the ability of that spouse or civil partner to sell any remaining interest may be restricted because he or she will be unable to offer immediate vacant possession to a purchaser.

For the date of the disposal of the interest see CG22420.

Example

Mr D bought a house (which he solely owned) in January 2010 for £100,000 and occupied it with his wife until May 2015, when they separated. He bought a new house for himself whilst she remained in the matrimonial home. They divorced in May 2019.

In August 2019 the Court ordered that Mrs D should be given 1/3 of the net proceeds of sale of the matrimonial home. She moved out in February 2020 and the house was sold with vacant possession in May 2020 for £165,000, with costs of sale £6,000.

The gain accruing to Mr D is computed as follows:

		£
	Disposal proceeds	165,000
less	costs of sale	6,000
	net proceeds	159,000
less	Cost	100,000
	Net gain	59,000

Mr D’s Private residence relief:

• Period of ownership is January 2010 - May 2020 = 125 months
• Period of only or main residence is January 2010 - May 2015 = 65 months
• Final period allowed by s223(2) TCGA92 = 9 months

The relief is ((65 + 9) / 125) x £59,000 = £34,928

The chargeable gain is £24,072 (£59,000 - £34,928) before the annual exempt amount.

Mr D is not entitled to a deduction for the £53,000 (that is, 1/3 x £159,000) paid to Mrs D, because this sum is an allocation of the proceeds and not a deduction in arriving at the gain.

Mrs D is  chargeable to Capital Gains Tax on the £53,000 she has received. Although it represents financial provision for her ordered by the Court it is also a capital sum derived from an asset (which in this case is the right to 1/3 of the proceeds of sale), see CG12940. 

See CG65358 for information on when private residence relief applies to a gain which accrues on receipt of a share of the sale proceeds of a former matrimonial home which was transferred to a former spouse or civil partner.