CG65315 | Private residence relief: separation, divorce or dissolution of civil partnership: computation of gains

The practical effect on the computation of the chargeable gain is to divide the sale proceeds, cost of acquisition, incidental expenses of purchase and sale and any expenditure on improvements, between the spouses or between the civil partners in the ratio of their respective equitable interests. This ratio is applied irrespective of which spouse or civil partner actually bore the expenditure.

The capital gains of each spouse or civil partner should be computed separately and private residence relief considered in relation to their joint period of residence up to the date they separated and any subsequent period of residence of each of them, together with the final period exemption of s223(2) TCGA92, see CG64985+.

You should also refer to the instructions at CG74200 if a valuation of each of their shares in the property is needed, for example, at 31 March 1982.

Example

Mr and Mrs A bought a dwelling-house in March 2011 and occupied it as their only residence until May 2015. Although the dwelling-house was in Mr A’s name Mrs A contributed equally to its cost and to the mortgage repayments.

In May 2015 the couple separated permanently. Mr A moved out of the matrimonial home and bought a house elsewhere. Mrs A continued to occupy the house as her only residence. Solicitors for the parties agreed that Mrs A was entitled to half of the proceeds of sale of the house in recognition of her equitable interest.

In November 2020 the house was sold and a gain of £30,000 accrued to each of Mr and Mrs A before private residence relief.

Mrs A has always occupied the dwelling-house as her only residence, so her gain is fully relieved. There is a restriction of relief for Mr A.

Mr A:

• Period of ownership is March 2011 - November 2020 = 117 months

• Period of only or main residence is March 2011 - May 2015 = 51 months

• Final period allowed by s223(2) TCGA92 = 9 months

The relief is ((51 + 9 )/ 117 )x £30,000 = £15,385

Mr A’s chargeable gain is £14,615 (£30,000 - £15,385) before the annual exempt amount.