New legislation that will change Capital Gains Tax on divorce

Many separating spouses will be pleased to learn that the current rules surrounding transfers of assets between an individual and their former spouse will be simplified as of 6th April 2023.

Topics to be answered in this article

Existing Law on CGT in Divorce

Currently, where spouses or civil partners separate, they are liable to pay Capital Gains Tax (CGT) on disposals made after the tax year in which they stop living together.  This has the effect of causing additional headaches to separating couples in terms of their potential liability to CGT, following separation, in addition to trying to reach a settlement.

Summary of new proposal

Separating spouses or civil partners will be given up to three years after the year they cease to live together, in which to make ‘no gain, no loss’ transfers. It has the effect of allowing married couples or civil partners to transfer assets between themselves without having to pay CGT. It applies to all assets including second homes, gifts and shares dealt with as part of a formal divorce agreement.

A spouse or civil partner who retains an interest in the former matrimonial home be given an option to claim Private Residence Relief (PRR) when it is sold.

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, be able to apply the same tax treatment to those proceeds when received that applied when they transferred their original interest in the home to their ex-spouse or civil partner.

The change of the rules creates a significant tax planning opportunity to potentially delay or defer any asset transfers that would or might otherwise result in a CGT liability.  It is apparent therefore that in most cases any CGT liability will be avoided, although specifics of each case of course will need to be considered.

The benefit to separating couples, apart from the potential savings in respect of CGT liability, is that it will allow sufficient time to consider a settlement and the transfer of assets without the additional pressure of incurring a potential charge to CGT.

Who does this affect?

The new rules only apply to married couples or civil partners and represent a very welcome relaxation of the CGT rules. They do not, however, apply to those who are not married or in a cohabiting relationship.

Summary on the change and what to do

In summary the new legislation will provide separating spouses or civil partners up to 3 years to make ‘no gain or no loss’ transfers between themselves when they no longer live together. An unlimited time frame will be given if the assets are the subject of a formal divorce agreement. 

Our specialist Family team at Goughs will be able to advise you on timescales and transfer of assets to take advantage of these upcoming changes to Capital Gains Tax liability. 

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Author Bio

Rhianna Cole

I have over 14 years’ experience as a Family Law specialist. I greatly enjoy the different aspects and challenges of this area of law. I take the time to get to know my clients in order to understand their objectives and desired outcomes. Where appropriate and possible I promote a conciliatory approach to issues, focusing on the needs of the client and always putting the wellbeing of any children involved first. My advice is clear, pragmatic, honest and outcome-focused in order to find the right solution for each individual. Experience has taught me the importance of building trusting relationships with my clients so I can effectively guide them through what are bound to be emotional and challenging times in their lives with compassion.

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