CG65358 - Private residence relief: separation, divorce or dissolution of civil partnership: treatment of deferred payments on or after 6 April 2023

There may be circumstances where a spouse or civil partner,听on听ceasing to reside听in the matrimonial or civil partnership home on separation, divorce or dissolution听of the marriage or civil partnership, transfers听their interest in the听home to their former spouse or civil partner听whilst retaining听a right to future the proceeds of sale. Should a gain accrue听to the transferring spouse or civil partner at the time of the sale听of the home,听they may be able to qualify for private residence relief under S225BA.听听

If Private Residence Relief applies, S225BA(2)听听provides that the gain is relieved听in the same proportion that relief applied to the original transfer to the former spouse or civil partner, or, where the original transfer qualified for the no gain or loss treatment, in the same proportion that private residence relief would have applied but for the no gain or loss treatment.鈥����听

To qualify for this treatment:听

  • the former matrimonial or civil partnership home must have been the spouse or civil partner鈥檚 main residence prior to the separation, divorce or dissolution of the marriage or civil partnership,听

  • the deferred payments must be in accordance with听a deferred sale agreement or court order, and听

  • but for the treatment afforded by S225BA TCGA92, the deferred payment would otherwise have been treated as a capital sum derived from an asset pursuant to听S22 TCGA92听(see CG65334)听

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Example听

In 2017 married couple Ellen听and Paul听together听bought a house for听拢300,000.听听听The house was their marital home until they听separated in December 2021.听 They divorced in March 2023.听 In June 2023听the Court ordered that Ellen should听transfer her听interest to Paul, but that听the property would be sold when the last of their children reached 18 years old, at which time听she would be听entitled to听one half of the听net proceeds of the sale.听 The house was sold in November 2024听after the last of their children had turned 18.听 The sale price was听拢380,000听with costs of disposal of 拢6,000.听 Ellen听received听拢187,000听(being one half of 拢380,000 minus 拢6,000).听听

Ellen is chargeable to capital gains tax on the 拢187,000 received听as it is a capital sum derived from an asset, namely the right to one half of the proceeds of sale.听Section 225BA will however provide that PRR is available in the same proportion that would have been available on the original transfer in June 2023.听