CG65310 | Private residence relief: separation, divorce or dissolution of civil partnership: legal/equitable interests

The person in whose name a dwelling-house is registered may or may not be the sole beneficial owner. It was held in Hazell v Hazell (a 1972 family law case) that if a spouse contributes directly or indirectly in money or money’s worth towards the initial cost, or towards mortgage instalments, they may acquire, in equity, an interest in the matrimonial home proportional to those contributions.

In these circumstances you should treat the spouse who is the legal owner as holding the property as a bare trustee for each of them as beneficiaries to the extent of their contributions. The term `bare trustee’ is explained at CG34320+. You should treat each spouse for Capital Gains Tax as absolute owners of shares in the property in proportion to their contributions.

This treatment will also apply to civil partners in a civil partnership.

Where a couple become permanently separated or are divorced or have their civil partnership dissolved, it is important for them to establish what equitable interest each of them has in the matrimonial or civil partnership home. This may be done by agreement between them or by the Courts.

Section 17 of the Married Women’s Property Act 1882, as amended, enables the Court to recognise an existing equitable interest of a spouse in property. Section 66 of the Civil Partnership Act 2004 similarly enables the Court to recognise an existing equitable interest of a civil partner in property. Such an equitable interest may exist whether or not the Court has formally recognised it. For example, its existence may be established by agreement between the parties (or by their solicitors).

If there is such an agreement or recognition, it should be accepted that the spouse or civil partner had an equitable interest in the home from the outset. Their equitable interest of up to one half should be accepted without investigation, unless exceptionally there is obvious evidence to contradict it.