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

If Private Residence Relief applies, S225BA(2)  provides that the gain is relieved 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.     

To qualify for this treatment: 

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

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

  • 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 S22 TCGA92 (see CG65334) 

 

Example 

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

Ellen is chargeable to capital gains tax on the £187,000 received as it is a capital sum derived from an asset, namely the right to one half of the proceeds of sale. 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.