Capital Gains Tax Changes on Divorce or Separation

In July 2022 the government published a policy paper on new legislation regarding capital gains tax (CGT) for those going through separation or divorce. The legislation will be introduced in the Finance Bill 2022-23. The changes are due to apply to disposals which take place on or after 6 April 2023. Please note that although expected, these changes are not yet in force.  The key points of the new measure are separating couples will be given:

  • up to three years in which to make ‘no gain no loss’ transfers of assets between themselves when they stop living together
  • unlimited time if the assets are the subject of a formal divorce agreement.

The new legislation will also introduce some special rules that apply to individuals who have maintained a financial interest in their former family home following separation and that apply when that home is eventually sold.

The current legal position

Currently the law provides for ‘no gain no loss’ treatment on disposals only within the remainder of the tax year of separation, sometimes resulting in a costly process for those in lengthy proceedings which take them beyond that first year. Other new measures within the draft legislation which will benefit separating couples include:

  • no gain or no loss treatment will also apply to assets that separating spouses or civil partners transfer between themselves as part of a formal divorce agreement, whenever that agreement concludes
  • a spouse or civil partner who retains an interest in the former matrimonial home will be given an option to claim Private Residence Relief (PRR) when it is sold – so it is hoped that those couples who separate on the basis of a Mesher order will no longer need to worry about the impact of CGT if their former spouse is likely to remain in the family home for a number of years
  • as regards 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, they will 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 – so those who conclude proceedings with an order for transfer with a charge back will not face a tax liability based on their future financial position.

The intent

The government state that they hope this will mean that separating families spend less time on CGT calculations and can focus on other matters in their settlement, and also that accumulated household wealth is not depleted by ‘dry tax charges’. Please note however that although expected these changes are not yet in force and the present rules still apply.

Initial Fixed Fee Consultation

Come and talk to us. You’ll find us empathetic, keen to help and with a wealth of experience. We offer a fixed fee consultation of £120 for the first appointment. You will be advised on the options open to you and the possible outcomes. Our priority is to ensure that you have a clear understanding of the path ahead and the challenges involved in achieving your goals.

Disclaimer: This guide contains general information only and does not constitute legal advice.  You need to consult a suitably qualified lawyer from the firm on any specific legal issue.