Capital gains tax on separation and divorce

For disposals on or after 6 April 2023, separating spouses and civil partners can transfer assets between them at no gain no loss until the earlier of the end of the third tax year after the tax year in which they stopped living together and the date a court grants the divorce or dissolution. Transfers made under a formal divorce or separation agreement or a court order are at no gain no loss with no time limit, and special private residence relief rules protect the partner who moves out of the family home.

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When does separation start for capital gains tax?

A married couple or civil partners are treated as living together unless they are separated under a court order, separated by a formal deed of separation, or separated in circumstances in which the separation is likely to be permanent. HS281 stresses that in each case the relationship must have broken down. The date you stop living together in that sense is the date that starts the clock, so it is worth recording it clearly, for example in correspondence between solicitors.

Until the Final Order (formerly decree absolute) or final dissolution order, spouses and civil partners remain connected persons, even if separated (CG22420). That governs what happens to any transfer that falls outside the no gain no loss rules.

How long does the no gain no loss window last?

Before 6 April 2023 a transfer only qualified if it happened in the tax year of separation, which left very little time for couples who separated late in a tax year. Finance (No. 2) Act 2023 replaced this, following an Office of Tax Simplification recommendation (policy paper, July 2022). Section 58 of the Taxation of Chargeable Gains Act 1992 now gives no gain no loss treatment where:

the couple are still married or in a civil partnership, have ceased to live together, and the transfer is on or before the earlier of the last day of the third tax year after the tax year of separation and the day a court grants the divorce, dissolution, annulment or judicial separation (section 58(1C)); or
the transfer is made under an agreement or court order in connection with the divorce, dissolution or separation, as described in section 225B(2), whenever it happens (section 58(1D)).

HS281 gives the example of a couple who separated on 1 December 2025: transfers can be made at no gain no loss up to and including 5 April 2029. In its second example, a transfer made in 2030 under a formal divorce agreement after a separation in July 2026 is also at no gain no loss, because agreement and court order transfers have no time limit.

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What happens if a transfer falls outside the window?

Outside section 58, the transfer is a disposal at market value. Between separation and the Final Order the couple are connected, so market value applies under sections 17 and 18. After the Final Order they are no longer connected through the marriage, and HMRC normally accepts a sale between them as at arm’s length, but a transfer under a court order is still at market value because a court order is not a bargain between the parties (Haines v Hill, CG22420).

The date of disposal follows the paperwork. An asset transferred under a court order made before the Final Order is treated as disposed of under a contract made on the date of the order; if it is transferred after the Final Order under such an order, the date of disposal is the date of the Final Order; and under an order made after the Final Order, it is the date of that order (CG22420). Informal transfers take effect when the asset is transferred, unless there was an earlier binding agreement (CG22410).

If a market value transfer would trigger tax, holdover relief may be available, but HS281 warns that surrendering rights to other financial provision is actual consideration that may eliminate it. See gift holdover relief.

What about the partner who moves out of the family home?

Once separated, each partner can have their own main residence and make their own nominations (CG65300). The partner who leaves keeps private residence relief for the time the house was their main residence and the final 9 months of ownership (HS281). A transfer or sale within 9 months of moving out is therefore usually fully relieved. A longer gap leaves part of the gain chargeable unless section 225B applies.

Section 225B lets the leaving partner claim that the house remained their only or main residence until the disposal, provided:

the disposal is under an agreement made in connection with the divorce, dissolution or a permanent separation, or under a qualifying court order (condition A);
the house remained the other partner’s only or main residence throughout (condition B);
the leaving partner has not nominated another home as their main residence for that period (condition C).

From 6 April 2023 the relief also covers a sale to a third party, not only a transfer to the former partner (CG65356). It must be claimed, and HS281 points out the cost: if you claim it, you get no private residence relief on any other home for the same period, so it may not suit someone who has bought a new home.

Illustration only. Dan moved out of the family home in October 2026 and bought a flat. Under a consent order the house is to be sold when the youngest child finishes school in 2031, with Dan keeping his half share. Without a claim, Dan’s relief on the house covers his years of occupation and the final 9 months. With a section 225B claim, his half is fully relieved, but his new flat gets no relief for October 2026 to the sale date. Which is better depends on how each property’s value moves.

What if I give up my share but keep a right to future proceeds?

Orders often transfer one partner’s share to the other while giving the leaving partner a percentage of the proceeds when the house is eventually sold. Since 6 April 2023, section 225BA treats that later receipt as a gain on the original transfer, so private residence relief applies in the same proportion that applied, or would have applied, to the original transfer (CG65358). If the order fixes a specific cash sum instead of a share of the proceeds, HMRC says no capital gain arises on the sale for the receiving partner (CG65358).

A Mesher order, where one partner holds the house on trust until an event such as the youngest child reaching 18, is treated as a transfer into a settlement. HMRC accepts that relief under section 225 is due to the trustee for the trust period while the other partner lives there (CG65365).

How are the shares in the home decided?

Legal title does not settle beneficial ownership. HMRC accepts that a partner who contributed to the cost or the mortgage may have an equitable interest from the outset, and will accept an equitable interest of up to one half without investigation where it is agreed between the parties or recognised by a court (CG65310). Each partner’s gain is then computed on their share of the proceeds and costs (CG65315).

What needs reporting?

A no gain no loss transfer of UK residential property is an excluded disposal, so no 60 day return is needed for it (Finance Act 2019, Schedule 2, paragraph 1(2)(a)). A market value transfer or a sale with tax to pay is reported in the normal way; see the 60 day property return. The receiving partner takes over the transferor’s base cost, so keep the purchase records. For how the rules work during the marriage, see transfers between spouses and civil partners.

What are the common mistakes?

Assuming the old tax year of separation rule still applies.
Letting the divorce be granted before informal transfers are made, which closes the window for transfers outside an agreement or order.
Forgetting that a section 225B claim removes relief on a new home for the same period.
Not recording the separation date or the terms of a deferred sale in the order.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.