CG65356 - Private residence relief: separation, divorce or dissolution of civil partnership: spouse or civil partner transferring interest
Effect of the Finance Act (No.2) 2023 on disposals occurring on or after 6 April 2023
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 former spouse or civil partner as part of the settlement on divorce or dissolution. Following the changes made under Finance Act (No. 2) 2023 such transfers will normally qualify for the no gain or loss treatment (see CG22200).
Prior to the Finance Act (No. 2) 2023, and in relation to disposals taking place before 6 April 2023, if the individual retained an interest in the matrimonial or civil partnership home, and the period between moving out of the matrimonial or civil partnership home and the transfer was longer than the final period exemption (see CG64985+), the gain would not qualify for full relief. Consequently, a charge to tax could have arisen at a time when funds were least likely to be available. The charge could be mitigated in appropriate cases by s225B TCGA92 for disposals on or after 6 April 2009.
S225B application pre-6 April 2023
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 where:
· the transfer is made under a formal divorce or separation agreement or court order,
· in between the transferring spouse or civil partner ceasing to reside in the home and the transfer to their former spouse or civil partner, the property continues to be the only or main residence of their former spouse or civil partner, and
· the transferring spouse or civil partner has not nominated another property to be treated as their only or main residence for the period between their ceasing to reside in the matrimonial or civil partnership home and the disposal of their interest in the former matrimonial or civil partnership home.
S225B application on or after 6 April 2023
The Finance Act (No. 2) 2023 therefore changed the treatment under S225B TCGA92 to allow private residence relief to be claimed on a disposal by the individual to a third party other than the former spouse or civil partner.
In relation to a transfer of interest on or after 6 April 2023, S225B TCGA92 allows the former matrimonial or civil partnership home to be treated as the only or main residence of a spouse or civil partner where:
· the disposal is made under a formal divorce or separation agreement or court order,
· in between a spouse or civil partner ceasing to reside in the home and the disposal of their interest in it to someone other than their former spouse or civil partner, the property continues to be the only or main residence of their former spouse or civil partner, and
· they have not nominated another property to be treated as their only or main residence for the period between their moving out and the disposal of their interest in the former matrimonial or civil partnership home.
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 former 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 transfer does not qualify for the no gain/no loss treatment (see CG22200).
Where the transferring spouse or civil partner ceases to reside in the matrimonial or civil partnership home, the transferring spouse or civil partner will be entitled to the relief for the period of time prior to ceasing to reside there and during which the matrimonial or civil partnership home was their main residence, in addition to the final period exemption.
The treatment of the former matrimonial or civil partnership home as the transferring spouse or civil partner’s main residence would apply for the period 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 of pre-6 April 2023 transaction
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 . 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. 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 former matrimonial home but would partially lose relief on his new home for the period between December 2016 and May 2021.