There is a common misconception that there is no Capital Gains Tax (CGT) to be paid on the transfer of the former matrimonial home between spouses or civil partners following separation.
The general rule is that the former matrimonial home will be exempt from capital gains tax as a result of being the parties’ Principle Private Residence (PPR). However, there can be some circumstances when there could be an element of capital gains tax payable on the transfer or sale of the former matrimonial home.
If the former matrimonial home has a significant amount of land, an annex or other properties which are let, there could be an element of CGT payable on the former matrimonial home.
In addition, married couples are only allowed one property with the benefit of PPR between them. As a result, if one spouse purchases another property after separation but before the divorce is complete, they could elect that property as being their Principle Private Residence. If this were to occur, they would lose the PPR status on the former matrimonial home and there could be CGT on the sale or transfer of their share of the property.
Since 6 April 2014, if a husband or wife do not elect for PPR on a new property, the last eighteen months of ownership of the matrimonial home would still be tax free (save for if there was CGT on the property as a result of land attached or the letting of part of the property) and he or she would not be liable for CGT in those last eighteen months. Before 6 April 2014, the period was for 3 years, but was then reduced to 18 months.
As a result, it is important that consideration is given as soon as possible in relation to the ownership of the former matrimonial home following separation, to ensure that the ownership of the property, whether that is a transfer between parties, or the sale is undertaken to avoid any unnecessary capital gains tax consequences.
Sarah Walls is an associate in the family team in Exeter, which was named Private Client and Family Law Team of the year at the British Legal Awards 2013. Sarah can be contacted on 01392 210700, by email solicitors@stephens-scown.co.uk