Guidance

HS281 Capital Gains Tax civil partners and spouses (2024)

Updated 6 April 2024

This helpsheet explains how spouses and civil partners are treated for Capital Gains Tax. The first part deals with transfers between spouses and civil partners who are living together. The second part is concerned with the situation where separation has occurred. But it’s only an introduction. If you’re in any doubt about your circumstances you should ask your tax adviser. We’ll also help and provide you with any forms you may need.

Our Capital Gains Manual explains the rules in more detail. This helpsheet will help you fill in the Capital Gains Tax summary pages of your tax return.

1. Capital Gains Tax liability

You and your spouse or civil partner are treated as separate individuals for Capital Gains Tax purposes. Each of you will pay tax only on your own gains and you will get relief only for your own losses. However, although you’re taxed separately, you may be treated as ‘connected’ with each other and with each other’s relatives for certain purposes.

If you and your spouse or civil partner are living together, any transfer of an asset between you is treated as giving rise to neither a gain nor a loss to the person transferring it. Any amount actually paid is ignored. If the person receiving the asset later disposes of it, they will be treated as if they had paid an amount equal to the total of your costs.

If you’re not living together or the asset involved is trading stock, any asset transferred between you is treated as transferred at its market value at the time of the transfer. So, in these circumstances, the person transferring the asset may make a chargeable gain or an allowable loss.

If you transfer exempt employee shareholder shares to your spouse or civil partner the shares are also treated as transferred at their market value at the time of transfer but you make no chargeable gain or allowable loss. Similarly, any asset transferred at the time of death is treated as acquired at its market value at that date and there’s no chargeable gain or allowable loss. In general, a person who inherits from their late spouse or civil partner is treated in the same way as any other person who inherits on death.

Helpsheet 287 Employee share and security schemes and Capital Gains Tax has more information about exempt employee shareholder shares. Helpsheet 282 Death, personal representatives and legatees tells you about transfers on death.

While Indexation Allowance has been abolished for Capital Gains Tax purposes for disposals made on or after 6 April 2008 it may still be allowed in computing the deemed disposal proceeds on no gain or loss transfers at an earlier time. Indexation Allowance was frozen in the computation of chargeable gains accruing on or after 6 April 1998. So Indexation Allowance is computed only to April 1998. The Capital Gains Manual explains the rules in more detail.

2. Assets held in your name

You’re chargeable to Capital Gains Tax if you dispose of an asset held in your name, unless you’re holding it on behalf of another person, such as your spouse or civil partner. If you’re holding an asset on behalf of your spouse or civil partner, your spouse or civil partner is commonly known as the beneficial owner and will pay tax if a gain is made from its disposal.

To decide which of you should return any gain and pay any tax, you should consider:

• whether you and your spouse or civil partner have made a formal declaration about beneficial ownership using Form 17, ‘Declaration of beneficial interests in joint property and income’
• who provided the cost price and whether the asset was bought as a gift for your spouse or civil partner
• who received the proceeds of the disposal

3. What counts as ‘living together’

You and your spouse or civil partner are treated as living together unless you’re separated:

• under a court order
• by a formal Deed of Separation executed under seal (in Scotland a deed should be witnessed)
• in such circumstances that the separation is likely to be permanent

In each case the marriage or civil partnership must have broken down. If the marriage or civil partnership has not broken down but the 2 of you do not live in the same house, you’re still treated as living together for Capital Gains Tax purposes.

4. Separation, divorce and dissolution

The remainder of this helpsheet explains your Capital Gains Tax liability if you’re separated or divorced or your civil partnership is dissolved and you’ve transferred assets to the spouse or civil partner from whom you’re separated, or to a former spouse from whom you’re divorced, or to a civil partner from a civil partnership which has been dissolved. The rules explained in this helpsheet apply for transfers on or after 6 April 2023. Before that date the rules were different and you will need to look at a helpsheet for an earlier year if you need to apply those rules.

5. Capital gains treatment in the years following permanent separation

If you and your spouse or civil partner were living together at some time in a tax year, you can transfer assets between you at no gain or loss any time up to earlier of the end of the third tax year after that in which you ceased to live together or the date on which a court grants a divorce or annulment of marriage, or dissolution or annulment of a civil partnership.

Transfers of assets between you or your spouse or civil partner in accordance with a formal divorce or separation agreement or court order will be at no gain or loss without any time limit.

5.1 Example 1

Mr Brown transferred an asset to Mr Green on 30 June 2023.

Mr Brown and Mr Green separated on 1 December 2023. Mr Brown transfers another asset to Mr Green on 1 March 2026.

Both transfers take place for an amount which gives neither a gain nor a loss to Mr Brown. Transfers may take place on this basis up to and including 5 April 2027 even though the couple were not living together after 1 December 2023.

5.2 Example 2

Mr Pen and Mrs Pen separated on 1 July 2024.

Mrs Pen transfers an asset to Mr Pen on 30 August 2028 as part of a formal divorce agreement.

This transfer takes place for an amount which gives neither a gain nor a loss to Mrs Pen. Transfers made as part of a formal divorce agreement or court order are not subject to any time limit.

If a transfer occurs between you and your spouse or civil partner and does not qualify for the no gain or loss treatment, there are rules to decide the date of disposal and the amount of consideration on disposal. These rules depend on your particular circumstances and the information you’ll need is the date of:

• any decree absolute or final order or dissolution of the civil partnership
• the court order if the asset was transferred by such an order
• any other contract under which the asset was transferred

As the rules are complicated, they’re not included in this helpsheet. Once you hold the necessary information, ask us or your tax adviser for help.

6. Private Residence Relief

You may be entitled to Private Residence Relief on any gain arising on the disposal of your only or main residence. You and your spouse or civil partner cannot have more than one residence or main residence between you for the purposes of the relief at any time while you’re living together (you are treated as living together unless you’re separated under a court order, or by Deed of Separation, or are otherwise separated in such circumstances that the separation is likely to be permanent). Following separation, the residence which is your only or main residence for the purposes of the relief need not be the same as that which is your spouse’s or civil partner’s only or main residence for such purposes.

If you cease to reside in the matrimonial or civil partnership home, you will be entitled to Private Residence Relief for the time before you moved out wen the house was your only or main residence and the final 9 months of your ownership of it.

Full Private Residence Relief will not be due where you cease to reside in the matrimonial or civil partnership home but:

• retain an interest in that home, and
• the home is sold more than 9 months after the time when the matrimonial or civil partnership home ceased to be your only or main residence

However, you can choose to treat the period after you ceased to reside in the home as if it had been you only or main residence where:

• the sale is made under a formal divorce or separation agreement or court order, and
• in between you ceasing to reside in the home and the sale to someone other that your former spouse or civil partner, the property continues to be the only or main residence of your former spouse or civil partner, and
• you have not nominated another property to be treated as your only or main residence for the period between your moving out and the disposal of your former matrimonial or civil partnership home

However, if you do claim relief for the period between moving out and the sale, you will not be entitled to Private Residence Relief on any other home for that period, so this may not be the best choice in every case.

6.1 Example 3

Mr Tree and Ms Plant separated on 30 April 2015 when Mr Tree moved out of their home and bought another house to live in.

In line with the terms of their formal separation agreement, both Mr Tree and Ms Plant retained their respective one-half shares in the former civil partnership home but Ms Plant is entitled to continue to reside there until the youngest of their children reaches 18 years old when the property is to be sold.

Ms Plant continues to live in the former civil partnership home until 1 January 2026 when the youngest child reached 18. It was then sold and the proceeds shared equally. Mr Tree is entitled to private residence relief for the time before the separation that he lived in the house as his only or main residence and the final 9 months up to the sale. Mr Tree may claim Private Residence Relief for the period from the separation to the sale. If he does so he will then not be entitled to Private Residence Relief on his new home for the period from when he purchased in up to 1 January 2026.

If you cease to live in your former matrimonial or civil partnership home and transfer your share in it to your spouse or civil partner under a formal divorce or separation agreement or court order but are also entitled to receive a proportion of the proceeds of sale when that home is eventually sold, you will be entitled to Private Residence Relief on the sale. Private Residence Relief will apply in the same proportion that relief applied to the original transfer to your 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.

6.2 Example 4

Mr Yellow and Mr Blue separated on 1 November 2023. Mr Blue moved out and subsequently purchased a new property to live in.

On 30 February 2024, Mr Blue transferred to Mr Yellow his half share of their former matrimonial home in line with the terms of their formal divorce agreement. As part of the agreement, Mr Blue was entitled to receive a third of the sale proceeds should the former matrimonial home be sold by Mr Yellow. At the time of the transfer, Mr Blue would have been able to claim full Private Residence Relief.

Mr Yellow continued to live in the former matrimonial home until 1 March 2028 when it was sold. Mr Blue is entitled to full Private Residence Relief on the one their share of the proceeds of sale he received in line with the terms of the formal divorce agreement.

6.3 Qualifying for Private Residence Relief as a non-UK resident

For Non-resident CGT purposes Private Residence Relief is available to the extent that the property was your only or main residence during the period relating to the gain reported on the Non-resident Capital Gains Tax return form. If you’ve more than one residence at the same time, you may need to nominate the UK property as your only or main residence when claiming relief. You can only nominate one property for Private Residence Relief.

If you occupied the property as your only or main residence at any time during your ownership (including before 6 April 2015) you’re entitled to relief for the final 9 months of ownership, irrespective of how the property was used in that period. You may also be entitled to absence relief for periods when it is not your only or main residence.

For tax years starting 6 April 2015 or later, unless absence reliefs apply, a residence is not regarded as your only or main residence for the year unless between you and your spouse or civil partner you stay at the property for at least 90 days (the ‘day count’ test) or you or your spouse or civil partner were a UK tax resident for that year. If you only owned the property for part of the year, the 90 days are apportioned in line with the time you were the owner.

7. Hold-over Relief

If an asset is transferred from one spouse or civil partner to the other after a separation but the no gain or loss rule does not apply, the transfer is treated as taking place at market value. The conditions for a claim to Hold-over Relief may be satisfied. In these circumstances, it’s important to know whether any consideration was given by the spouse or civil partner receiving the asset.

If the asset is transferred in exchange for a surrender, by the recipient, of rights they would otherwise be able to exercise to obtain alternative financial provision, whether by way of a court order or not, the value of the rights surrendered is actual consideration of an amount that may eliminate any Hold-over Relief.

Helpsheet 295 Relief for gifts and similar transactions has more information.

8. Contact

Online forms, phone numbers and addresses for advice on Self Assessment.