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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Private residence relief: separation, divorce or dissolution of civil partnership: legal/equitable interests

The person in whose name a dwelling house is registered may or may not be the sole beneficial owner. It was held in Hazell v Hazell (a 1972 family law case) that if a wife contributes directly or indirectly in money or moneys worth towards the initial cost, or towards mortgage instalments, she acquires, in equity, an interest in the matrimonial home proportional to those contributions. Similarly, a husband who contributes directly or indirectly also acquires in equity an interest in the matrimonial home proportional to those contributions, even though the wife alone is registered as the legal owner.

In these circumstances you should treat the spouse who is the legal owner as holding the property as a bare trustee for each of them as beneficiaries to the extent of their contributions. The term `bare trustee’ is explained at CG34320+. You should treat the husband and wife for Capital Gains Tax as absolute owners of shares in the property in proportion to their contributions.

This treatment should also apply to civil partners in a civil partnership.

Where a couple become permanently separated or are divorced or have their civil partnership dissolved, it is important for them to establish what equitable interest each of them has in the matrimonial or civil partnership home. This may be done by agreement between them or by the Courts.

Section 17, Married Womens Property Act 1882, enables the Court to recognise an existing equitable interest of the wife in the home. CPA04/S66 similarly enables the Court to recognise an existing equitable interest of a civil partner in the home. Such an equitable interest may exist whether or not the Court has formally recognised it. For example, its existence may be established by agreement between the parties (or by their solicitors).

If there is such an agreement or recognition, it should be accepted that the wife or civil partner had an equitable interest in the home from the outset. Their equitable interest of up to one half should be accepted without investigation, unless exceptionally there is obvious evidence to contradict it.