CG65334 - Private residence relief: separation, divorce or dissolution of civil partnership: effect of court action
If the court recognises an existing equitable听interest, there is no disposal from the spouse or civil partner with the legal title to the spouse or civil partner with the equitable听interest. The Court recognises that interest, it does not create it. The beneficial ownership is not altered.听
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.听
For the date of the disposal of the interest see鈥�CG22420.听
If the Court orders provision听of a specific听amount of money听for a spouse or a civil partner out of the proceeds of听a听future sale of听the house, the Court has not created or recognised an interest in that house. The beneficial ownership is not altered. This is illustrated by the example shown below.听听听
Example听
Mr D bought a house鈥�(which he solely owned)鈥痠n January 2010 for 拢100,000 and occupied it with his wife until May 2015, when they separated. He bought a new house for himself whilst she remained听in the matrimonial home. They divorced in May 2019.听
In August 2019听the Court ordered that Mrs D should be given 拢53,000 out听of the net proceeds of any future sale of the matrimonial home听by Mr D. She moved out in February 2020听and the house was sold with vacant possession in May 2020 for 拢165,000, with costs of sale 拢6,000.听
The gain accruing听to Mr D is computed as follows:听
Disposal proceeds听of 拢165,000听
Less the costs of sale of 拢6,000听
Less the acquisition cost of 拢100,000听
Equals听a net gain of 拢59,000听
听Where:听听
Mr D鈥檚 Period of ownership for the period January 2010 to听May 2020听amounts听to 125 months;听
of that, the period of 鈥�only or main residence鈥�听is between January 2010 - May 2015, or听听65听months;听
and the final period allowed by s223(2) TCGA92 is听9 months;听
Mr D鈥檚 Private residence relief is calculated as follows:听
65 months plus 9 months gives a total period of 74 months听
74 months is divided by the whole period of ownership of 125 months, equating to 0.592听
0.592 is multiplied by the net gain of 拢59,000, equating to 拢34,928听
拢34,928 is deducted from the net gain of 拢59,000, giving a chargeable gain of 拢24,072听
Annual exempt amounts may then be applied to the chargeable gain.听听
Mr D is not entitled to a deduction for the 拢53,000 paid听to Mrs D, because this sum is not allowable expenditure deductible from the proceeds under s38in arriving at the taxable gain.听
No chargeable gain accrues听to听Mrs D on the sale of the house or on receipt of the amount of 拢53,000 payable to her.听听
Where the听Court orders provision for a spouse or a civil partner to be paid a proportion of the proceeds of a future sale of the house without there being a continuing interest in it up to the time of sale, this is听a right to future unascertainable consideration.A听right to future unascertainable consideration constitutes听an asset in its own right for听capital gains purposes as illustrated by the decision in Marren听(Inspector of Taxes) v Ingles [1980].听 厂别别鈥�CG65358鈥痜or information on when private residence relief applies to a gain which accrues听in these circumstances.听