Divorce -- letting the Wife live in the Former Matrimonial Home

A common Court Order made/Settlement Agreement reached between divorcing couples is that the jointly owned FMH should be held in trust for both Husband and Wife, and is not sold until the youngest child reaches 17.  The Wife and the children live there rent-free, subject to the Wife paying all outgoings

Capital Gains Tax ("CGT")

Such an arrangement creates a trust for CGT purposes

There is no CGT on the creation of this arrangement, because wife enjoys Principle Private Residence Relief ("PPRR") and so does Husband if the transfer into the trust is within 3 years of separation

If, when the youngest child reaches 17, the Trustees sell the FMH promptly, there is no CGT

However, if there is delay and the FMH increases in value, the Wife will pay no CGT because of PPRR but the Husband no longer has this and may have to pay CGT on the increase in the value of his share in the FMH

Inheritance Tax ("IHT")

Such an arrangement creates a trust for IHT purposes.

If the trust is created by court order, there is no IHT on the creation of the trust

If the trust was created before 22/03/2006, there are no 10 yearly or exit charges

If the trust was created after this date, there are both 10 yearly and exit charges

Conclusion

This common arrangement has become very expensive in tax terms.  There are ways to achieve the same outcome, but without paying the same tax