My client left his former matrimonial home in 2016 and his ex-wife continues to occupy, to this day, as her principal private residence (PPR). It is about to be sold and I believe that our client will face a CGT liability on the pro-rata gain on his share between his departure and the sale (less 18 month exemption) because he cannot take advantage of TCGA 1992, s 225B because the property has not been transferred to his former spouse.  This seems unfair given that he has not elected anything else to be his PPR and she will not pay any tax on the disposal by virtue of her continued occupation. Is this correct?

Arthur Weller replies: 
It is correct. It is a condition of the legislation that for the period the 'leaving spouse' didn't live in the house, to be deemed occupied, and exempt from CGT, that the leaving spouse has to give their interest in the house to the 'remaining spouse' (see HMRC’s Capital Gains manual at www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65356). So in your case where the house is to be sold to a third party, the exemption will not apply. It may be unfair, but those are the rules.