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On separation or divorce, it is common for one spouse to move out of the family home and for the other spouse to continue to live there. Where the couple have children, the spouse remaining in the family home may do so until the youngest child reaches the age of 18, at which point the family home is sold and the proceeds shared. Alternatively, the departing spouse may transfer their interest in the family house to the remaining spouse as part of a divorce settlement, or the marital home may be sold to a third party.

Legislative changes introduced from 6 April 2023 extended the ability of the departing spouse/civil partner to benefit from private residence relief (PRR) and also extended the no gain/no loss rules to a transfer under a divorce settlement of an interest in the marital home to the former spouse/civil partner.

Sale to a third party

Where an individual ceases to live with their spouse or civil partner in a property that was their only or main residence, and they subsequently dispose of their interest in the property to someone other than their former spouse or civil partner, the property is treated as the individualโ€™s only or main residence until the date of disposal if the following conditions are met.

The first condition is that the disposal is made pursuant to an agreement between the individual and his or her spouse or civil partner in contemplation of or otherwise in connection with the dissolution or annulment of the marriage or civil partnership, their judicial separation or the making of a separation order in respect of them, or their separation in other circumstances such that the separation is likely to be made permanent, or it is made pursuant to an order of a court:

  • made on granting an order or a decree of divorce or nullity of the marriage, for the dissolution or annulment of the civil partnership, or for judicial separation;
  • made in connection with the dissolution or annulment of the marriage or civil partnership or the partiesโ€™ judicial separation and which is made at any time after granting such an order or decree;
  • made at any time under the Matrimonial Causes Act 1973, ss. 22A 23, 23A, 24 or 24A;
  • made at any time under the Matrimonial Causes (Northern Ireland) Order 1978, art. 25 or 26;
  • made under the Family Law (Scotland) Act 1985, including incidental orders made under that Act; or
  • made at any time under any corresponding provision in the Civil Partnership Act 2004.

The second condition is that during the period between which the individual ceased to live in the property and its disposal, it continues to be the main residence of their spouse or civil partner.

The third condition is that the individual has not given notice for another property to be treated as their main residence during that period.

The extension of the relief will be of benefit to couples who delay the sale of the marital home until, say, the youngest child reaches age 18. The departing spouse will be able to continue to benefit from PRR on their share of the gain as long as they have not elected for another property to be their only or main residence. Previously, PRR was lost nine months after they moved out.

Disposal in connection with a court order

Divorcing couples and civil partners can now benefit from the no gain/no loss rules on a transfer of interest in the marital home from one party to another without time limit where the transfer is made pursuant to an agreement between the individual and his or her spouse or civil partner or former spouse or civil partner in contemplation of or otherwise in connection with the dissolution or annulment of the marriage or civil partnership, their judicial separation or the making of a separation order in respect of them, or their separation in other circumstances such that the separation is likely to be made permanent, or it is made pursuant to an order of a court:

  • made on granting an order or a decree of divorce or nullity of the marriage, for the dissolution or annulment of the civil partnership, or for judicial separation;
  • made in connection with the dissolution or annulment of the marriage or civil partnership or the partiesโ€™ judicial separation and which is made at any time after granting such an order or decree;
  • made at any time under the Matrimonial Causes Act 1973, ss. 22A, 23, 23A, 24 or 24A;
  • made at any time under the Matrimonial Causes (Northern Ireland) Order 1978, art. 25 or 26;
  • made under the Family Law (Scotland) Act 1985, including incidental orders made under that Act; or
  • made at any time under any corresponding provision in the Civil Partnership Act 2004.

This will benefit divorcing couples where one party stays in the marital home, preventing a gain arising where an interest in the property is transferred from the departing partner to the remaining partner. The legislation removes the time pressure to make the transfer as there is no deadline by which it must be done. On any eventual sale, the remaining partner will benefit from PRR if the property has been their only or main residence throughout.

Partner note: TCGA 1992, s. 58; 225B.

 

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