CG65365 - Private residence relief: separation, divorce or dissolution of civil partnership: Mesher Orders

An order by the Courts that a spouse holding an interest in the matrimonial home should hold it on trust for a limited period, for example, until:

• remarriage of the other spouse

or

• death of the other spouse

or

• the 18th birthday of the youngest child of the marriage and entitling the other spouse to occupy the home for the trust period, is often referred to as a Mesher Order.

Similar orders may be made in connection with the dissolution of a civil partnership.

Alternatively, a binding agreement may be made between the parties about the occupation of the home in similar terms but without an order of the Court.

In such cases you should accept that the order or the agreement results in a transfer into trust by the spouse who holds the interest which is subject to the court order or the agreement at the date of that order or agreement. Under s70 TCGA92 (see CG35700), such a transfer is a disposal of the whole asset becoming settled property, even though the spouse transferring the property has retained an interest in it.

You should accept that an amount of private residence relief is due under s225 TCGA92 to the trustee of the settlement created by the order or the agreement (see CG65400+), for the trust period, if the property is occupied for some or all of that period as the only or main residence of the spouse entitled to occupy under the terms of the order or agreement. The trustee will usually be the spouse who holds the interest subject to the settlement.

When the stipulated period ends, the spouse holding the interest in the property which is subject to the trust will generally become absolutely entitled to it, see CG37000+. There will be a deemed disposal by him or her as trustee under s71(1) TCGA92.

Example

Mr C bought a house in 2009 and occupied it with his wife as their only residence until 2013, when they separated. Mr C moved into rented accommodation while Mrs C continued to reside in the house. They divorced in March 2017. By a Court Order in May 2017 Mr C was ordered to hold the property on trust for Mrs C and the children until the youngest child, who was then 14, was 18. The youngest child reached 18 in January 2021 and the property was sold in February 2021.

The Court Order in May 2017 results in a transfer into trust and so is an occasion of charge on Mr C under s70 TCGA92. Mr C makes a claim for s225B TCGA92 to apply and so private residence relief will be due in full.

There is a second occasion of charge on Mr C in January 2021 when the youngest child reaches 18. You should allow full relief under s225 TCGA92, see CG65400+. No relief is due when the dwelling-house is sold in February 2021 but any increase in value between January and February is likely to be negligible and so a chargeable gain is unlikely to accrue.