Publish date

17 August 2022

What do the relaxation of Capital Gains Tax rules mean for separating and divorcing couples?

The Government recently published draft legislation for the Finance Bill 2022/23. Part of this includes amendments to CGT rules, which will be welcome news for separating spouses and civil partners looking to transfer assets, including properties.

What are the current rules for separating or divorcing couples?

Couples who are married or in a civil partnership are currently able to carry out ‘no gain or no loss’ transfers of assets between each other without triggering an immediate CGT charge. However, couples who are separating or divorcing can only continue to take advantage of this tax benefit for the remainder of the tax year in which they separate. Any transfers of assets outside the tax year of separation potentially incur an immediate tax liability.

This issue was explored in a report from the Office of Tax Simplification (OTS) back in 2021, which highlighted that “it is unrealistic to expect separating couples to have resolved their affairs by the end of the tax year of their separation.” The OTS recommended that the window for no gain or no loss transfers be extended to at least two tax years.

What changes will the legislation bring?

However, the draft legislation goes even further, and stipulates that from 6 April 2023, separating spouses or civil partners be given up to three years after the year they stop living together in which to make no gain or no loss transfers.

It also states that no gain or no loss treatment will apply to assets that separating spouses or civil partners transfer between themselves as part of a formal divorce agreement. A spouse or civil partner who retains an interest in the former matrimonial home is also to be given an option to claim Private Residence Relief (PRR) when it is sold.

In addition, individuals who have transferred their interest in the former matrimonial home to their ex-spouse or civil partner and are entitled to receive a percentage of the proceeds when that home is eventually sold, will be able to apply the same tax treatment that applied when they transferred their original interest in the home to their ex-spouse or civil partner.

What does this mean for separating and divorcing couples?

This is good news for separating and divorcing couples, as it helps to remove pressure to reach an agreement in a tight timeframe, adding additional stress at an already emotional time. Further, couples who may not have considered the tax implications of a delay in agreeing the longer term financial arrangements, and not sought early advice, will not be disadvantaged.

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