Selling a former home: changes for 2023/24

Year of separation

Married couples and civil partners can transfer assets, including an interest in a property, between them on a no gain, no loss basis while living together. For tax purposes, they are treated as living together unless they are separated under a court order, deed of separation or in circumstances that are likely to be permanent, even where they live in the same property.

Old and new rules

Before 6 April 2023, the capital gains tax (CGT)-free transfer was available until the end of the tax year that a separation occurred. A welcome change for 2023/24 is that the CGT-free period has been extended until the end of the third year following the tax year of separation. This means separating couples have more time to divide their assets in a tax-efficient way. However, this isn’t the only change that has come into effect.

If the couple is granted a formal divorce prior to the end of the three-year period, the date the decree absolute is granted marks the end of the CGT-free period. However, if the transfer is made as part of an agreement connected to the divorce, there is no time limit.

Example. John and Bella separate in December 2023. A court grants their divorce in September 2026 and decrees that several assets must be transferred between them. The transfers take place in June 2027, so outside the stipulated window, but no gain, no loss treatment is available regardless.

Sale to third party

It’s common for one party to move out of the property after a separation. This can lead to a CGT charge because, other than the final nine months of ownership, private residence relief (PRR) won’t be available for the period of non-occupation. Sometimes, the former couple will agree, or a court may order, that the previous matrimonial home be sold as part of the formal financial settlement. Where this is the case, and the sale takes place after 6 April 2023, the individual that left the property can make an election to treat the former home as their main residence until the earlier of the sale date, or the date it ceases to be the remaining partner’s only or main residence.

This can only apply if the departing partner has not made a nomination in favour of another residence for the relevant period.

PRR can only apply to one residence at a time. If the departing partner acquires another property, they can’t claim PRR for the period that the former marital home continues to qualify for the relief. You would need to consider which property is likely to yield the larger gain for the relevant period before making an election.

Deferred sales

It’s also possible that, by agreement or court order, the departing partner will transfer their interest to the other and the property is subject to a deferred sale agreement/order, e.g. under a Mesher order. A new part of the legislation ensures that when a share of the profit on the eventual sale is received, it will be treated in the same way as the original transfer to the spouse and will qualify for PRR.

This prevents a CGT charge on the right to receive a capital sum “derived from an asset”, which would otherwise be treated as a separate asset to the property - and wouldn't qualify for relief..