The family home is often the family asset of highest value, and in most cases individuals would not consider that the transfer of the home could be a chargeable disposal. However, the family home ceases to be the main residence of the spouse or partner who leaves it following separation.
The final 18 months will still qualify as a period of deemed occupation for PPR, allowing one spouse to dispose of their share of the property to the remaining spouse within 18 months of moving out, exempt of capital gains tax.
There are provisions that allow PPR to be claimed on a transfer to the spouse more than 18 months after they move out. These provisions allow the former matrimonial home to be treated as the only or main residence of the departing spouse from the date their occupation ceased until the earlier of:
- The date of transfer, or
- The date on which the property ceases to be the only or main residence of the remaining spouse to whom the property is transferred.
If the departing spouse has acquired another place to live since leaving the family home, it might not be advantageous to make a claim for this provision to apply. PPR relief can only be allowed on one residence at a time. If relief is given on the former matrimonial home, it will be lost on the other property.
The family home may be sold and the proceeds divided between the spouses. If the home is sold within 18 months of one spouse leaving the property, the gain on sale will be exempt for both parties. However, if the disposal is after 18 months from when the spouse moved out, they could have an unwelcome tax charge.
There is a Stamp Duty Land Tax (SDLT) exemption where land or property is transferred due to a divorce or dissolution of marriage, and an SDLT need not be completed.
Court orders and meaning of "net proceeds"
Taking appropriate legal as well as tax advice on separation can make a significant difference to the overall tax position. For example, where a property is transferred to one member of the couple following separation, spouses and/or children might be entitled under court orders to a percentage of net proceeds on a future sale of the property.
Agreements should be carefully worded, as "net proceeds" does not necessarily mean net of tax. The vendor can be left out of pocket where capital gains tax – or income tax – is not included in the calculation of net proceeds.
CGT holdover relief on transfers of qualifying assets
CGT holdover relief might be available where qualifying business assets are transferred after the tax year of separation.
