HMRC internal manual

Capital Gains Manual

CG22505 - Transfer of assets: between spouses or between civil partners: separation, divorce or dissolution: value of consideration where date of disposal is after decree absolute or after the date dissolution is made final

Following the decree absolute former spouses are no longer connected persons by virtue of their former marital relationship. Equally following the date the dissolution order is made final, former civil partners are no longer connected persons by virtue of their former relationship. Although it should be noted that the parties may still be connected persons for some other reason, for example, they might be in partnership and so connected persons by virtue of TCGA92/S286 (4).

In circumstances where the parties are no longer connected you may normally accept that a subsequent sale of an asset by one to the other is a transaction at arm’s length. If, exceptionally, the sale price seems to differ substantially from the expected market value, this may be indicative of a bargain which is not at arm’s length, see CG14540+.

However if the disposal between them is in pursuance of a court order, TCGA92/S17 (1) would still apply to the transaction to deem the disposal consideration to be equal to the market value of the asset at the date of disposal. This is because a court order is not a ‘bargain’ between the parties; it is the court who decides on the terms, not the parties to the order. Thorpe LJ confirms this in his comments in the non-tax case of Haines v Hill ([2007] EWCA Civ 1284) at the Court of Appeal:

“How then did His Honour Judge Pelling QC arrive at the opposite conclusion? The simple answer, in my judgment, is that Judge Pelling misunderstood the case law surrounding Sections 23 – 25 of the Matrimonial Causes Act 1973. His focus was on the decision of this court in Xydhias v Xydhias [1999] 2 All ER 386 (CA) and two subsequent decisions at first instance G v G (financial provision: equal division) [2002] 2FLR 1143 and McMinn v McMinn [2003] 2FLR 823. From these three cases he correctly extracted the proposition that the contractual agreement between applicant and respondent for the compromise of an ancillary relief claim is not conclusive unless and until made the subject of a consent order of the court. That is because the court exercises a quasi inquisitorial jurisdiction and has an independent duty to investigate and determine what is fair to the parties. In very rare cases the court may decide to order more or less than had been agreed. There are obvious parallels with the settlement of an infant’s claim to damages” (emphasis added).

Therefore, where an asset is transferred in pursuance of a court order after decree absolute or dissolution when the parties are no longer connected by virtue of TCGA92/S286 (2), the disposal proceeds will be deemed to be equal to the market value of the asset by virtue of TCGA92/S17 (1).