Q&A: divorce and property taxes
Croner Taxwise tax adviser Suzanne Rowland examines divorce settlements and selling marital homes, considering tax liabilities and claims for private residence relief (PRR)
13 Mar 2018
Q: I moved out of the marital home a year ago into a rented property. As part of the divorce settlement, it has been agreed that I will transfer my share of the marital home to my ex-partner once they have raised the finance to buy me out. I am unsure how long this could take, or if we will have to put the house up for sale, and therefore how this will affect my private residence relief (PRR) claim.
A. Normal PPR relief would allow you to relieve the gain on the sale of this property, which had been your residence, for the period that you actually lived there and the last 18 months for any other reason.
Depending on when your ex-partner manages to raise the finance this later period of absence may well be covered by these basic rules.
However, Taxation of Chargeable Gains 1992 (TCGA 1992) section 225B legislates for the right to receive PPR on disposals in connection with the end of a marriage or civil partnership, where a partner ceases to live with their spouse or civil partner in what was their only or main residence.
This gives you some leeway in that you can still be classed as accruing, and so make a claim for, PPR on the ex-marital home that you no longer live in due to the separation.
There are no time limits given in the legislation for how long this PPR can accrue but conditions have to be met.
One of the conditions is that your disposal is part of the agreement on dissolution or annulment of the marriage or civil partnership, where separation is likely to be permanent or by order of the court.
Another condition is that your previous partner must also have this property as their only or main residence from the period that you move out to when you transfer your interest to them.
This is also a key point that sometimes gets missed when the house is put up for sale and sold to a third party.
To enable this claim, if you do decide to put the house on the market, you must transfer your share to your ex-partner before it is sold to a third party. Otherwise, you fail as you have not transferred your share to your ex-partner who is still living in the house.
The other pitfall is electing another property as your main residence in the period between moving out and transferring your interest to your ex-partner. If you buy a main residence in the interim you may fail the claim under s225B.
About the author
Suzanne Rowland is a tax adviser at Croner Taxwise advice lines Tel: 0844 892 2470.
This article first appeared in Tax Question of the Week by Croner Taxwise on 6 March 2018.