Mesher orders and capital gains tax

HMRC treats a Mesher order as the owning spouse putting the family home into a trust on the date of the order, which is a disposal for capital gains tax. The spouse who moved out can usually claim private residence relief on that disposal under section 225B, and relief continues during the trust period because the other spouse lives in the home. Tax usually only bites on any growth in value between the end of the trust period and the eventual sale.

Tax investigation insurance from £108.75 a year (£9.06 a month).Pays up to £100,000 of your accountant's fees if HMRC opens an enquiry. No excess. Buy online in a few minutes.

See my price in 2 questions How the cover works Accountant? Offer cover to your clients or call 01795 841 310

What is a Mesher order?

A Mesher order is a court order on divorce or dissolution under which a spouse’s interest in the family home is held on trust for a limited period, with the other spouse entitled to live there in the meantime. HMRC’s Capital Gains Manual at CG65365 gives the usual end points: the remarriage or death of the occupying spouse, or the youngest child reaching 18. The same treatment applies to similar orders on the dissolution of a civil partnership and to a binding agreement between the parties in the same terms made without a court order.

The practical effect is that the spouse who has moved out keeps their share of the house but cannot sell it until the trigger event. That is quite different from an order that transfers the house outright with a deferred payment, which is covered in our wider guide to capital gains on separation and divorce.

Why is there a disposal when nothing is sold?

CG65365 tells HMRC officers to accept that the order or agreement results in a transfer into trust, by the spouse whose interest is subject to it, at the date of the order or agreement. Under section 70 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992), that is a disposal of the whole asset as it becomes settled property, even though the transferring spouse keeps an interest in it. CG65334 draws the line between a court recognising an equitable interest that already exists, which is not a disposal, and a court creating a new interest by ordering a transfer to the other spouse or into trust, which is.

A settlor and the trustees of the settlement are connected persons under section 286(3), and transactions between connected persons are treated as not at arm’s length, so the disposal is measured at market value (CG14560). CG22420 adds that where a court order transfers an asset before the final order of divorce, the transfer is treated as made under a contract entered into on the date of the court order.

Worried about an HMRC check? Tax investigation insurance pays your accountant’s fees if HMRC opens an enquiry or compliance check. Solar Protect cover pays up to £100,000 with no excess. It never pays tax, interest or penalties.

From £108.75 a year (£9.06 a month) for individuals, £117.57 for sole traders and £207.50 for companies and partnerships, including IPT and the £20 admin fee.

See my price in 2 questions or call 01795 841 310.

★★★★★ Rated 4.9 out of 5 on Trustpilot from over 160 reviews

Can the spouse who moved out get private residence relief on that disposal?

Usually, yes, through section 225B TCGA 1992. Where an individual stops living with their spouse or civil partner in a home that was their only or main residence and later disposes of it, or an interest in it, to someone other than the spouse, the home is treated as continuing to be their only or main residence until the disposal if three conditions are met:

Condition A: the disposal is made under an agreement in connection with the divorce, dissolution, judicial separation or a separation likely to be permanent, or under a qualifying court order, including orders under sections 23A and 24 of the Matrimonial Causes Act 1973 and their Scottish, Northern Irish and civil partnership equivalents.
Condition B: between moving out and the disposal, the home continues to be the only or main residence of the spouse or civil partner.
Condition C: the individual has not given notice under section 222(5) or 222A that another home is their main residence for any part of that period.

The relief must be claimed (section 225B(5)). The words “someone other than” the spouse were inserted by Finance (No. 2) Act 2023 for disposals on or after 6 April 2023, which is what lets section 225B cover a transfer into a Mesher trust. In HMRC’s own example at CG65365, the husband claims section 225B and private residence relief is due in full on the transfer into trust.

What relief is due while the trust lasts?

Section 225 extends private residence relief to trustees disposing of settled property where, during their ownership, the home was the only or main residence of a person entitled to occupy it under the terms of the settlement. CG65365 confirms that relief is due to the trustee for the trust period if the occupying spouse lives there as their only or main residence, and notes that the trustee will usually be the spouse who holds the interest. CG65400 adds that trustees must claim the relief for disposals made on or after 10 December 2003, and that if the occupying spouse has more than one residence, any main residence nomination must be made jointly with the trustees. More on trust relief is in our guide to PRR for trust owned homes.

What happens when the trigger event arrives?

When the stipulated period ends, the spouse holding the interest generally becomes absolutely entitled to it, and CG65365 says there is a deemed disposal by them as trustee under section 71(1). Full relief under section 225 is normally available on that deemed disposal, because the occupying spouse lived there for the whole trust period.

The gap afterwards is where tax can arise. In the CG65365 example, the youngest child turns 18 in January 2021 and the house is sold in February 2021. HMRC says no relief is due on the sale itself, but any increase in value over that month is likely to be negligible, so a chargeable gain is unlikely. If the house is kept for a year or more after the trigger event while the owning spouse lives elsewhere, the growth over that period is exposed to tax.

How does this differ from a share of sale proceeds order?

Some orders transfer the house to the occupying spouse outright but give the departing spouse a percentage of the proceeds when it is eventually sold. For deferred payments on or after 6 April 2023, section 225BA treats the later receipt as a gain on the original transfer, relieved in the same proportion that private residence relief applied, or would have applied, to that transfer (CG65358). If the order gives a fixed cash sum from the proceeds instead, CG65334 says no chargeable gain arises to the receiving spouse. Under a Mesher order, by contrast, the departing spouse still owns the interest throughout, through the trust.

What does a Mesher timeline look like?

Illustration only. Dan owns the family home in his sole name. He moves out in January 2024 into rented accommodation, and Emma stays with the children. A Mesher order in May 2025 provides that Dan holds the house on trust until the youngest child turns 18 in 2031, with Emma entitled to live there.

May 2025: Dan transfers the house into trust at market value under section 70. Emma has lived there throughout and Dan has made no main residence election for any other property, so he claims section 225B and the gain is fully relieved.
2025 to 2031: Dan holds the house as trustee while Emma lives there as her main residence.
2031: Dan becomes absolutely entitled. The deemed disposal under section 71(1) is relieved under section 225 on a claim.
2032: Dan sells for £20,000 more than the 2031 value. That gain has no residence relief behind it, so Dan pays capital gains tax on it after any annual exempt amount, and must report and pay within 60 days of completion as explained in our guide to the 60 day property return.

What mistakes come up most often?

Assuming nothing happens for tax until the house is sold. The order date is a disposal, and section 225B relief has to be claimed.
Making a main residence election for a new home before the order. That breaks Condition C for the period it covers.
Forgetting the trustee’s own claim under section 225 for the trust period.
Leaving the house empty or let for a long time after the trigger event without realising the growth is taxable.
Confusing a Mesher order with an order for a fixed sum or a share of proceeds, which follow different rules. The general position on transfers between spouses and on private residence relief is covered separately.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.