Proposed changes to Capital Gains Tax in divorce settlements
A move to a longer period of ‘no loss, no gain’ in April 2023 will be welcomed by many
The government recently announced plans to relax the Capital Gains Tax (CGT) rules within divorce financial settlements. HMRC stated that they ‘hope this will give spouses and civil partners more time to transfer assets without incurring a charge to CGT’. If approved, the new rules will take effect from April 2023 and be welcomed by many.
Currently, married couples have until the end of the tax year in which they separate to transfer assets between them free of CGT. This is known as ‘no gain no loss’. If the transfer takes place in the tax year after their separation, then the transfer is deemed to be at market value and CGT is payable based on the gain at transfer.
The issue, for many, is that this tax bill comes at a time when cash funds may be low and where a separated spouse may be keen to ensure their future financial security following a divorce. Those who have left the family home (and are not present there for more than nine months) are penalised under the current rules as they are deemed to no longer benefit from full main home Private Residence Relief (PRR) when it is sold.
What do the proposed changes mean for separating couples?
The proposed changes will mean that:
- Separating spouses or civil partners be given up to three years after the year they cease to live together to make no gain or no loss transfers.
- 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.
- 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, providing that the sale and absence from the property is due to divorce.
- 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 to those proceeds when received that applied when they transferred their original interest in the home to their ex-spouse or civil partner.
The changes will not impact any assets that are sold as part of proceedings. The Capital Gains Tax position on sale will remain the same (CGT payable within 60 days of sale). It is also unclear at present whether the changes will apply retrospectively to say those separating now.
Contact a divorce financial settlement specialist
If you are concerned about the impact the proposed changes might have on your current separation or divorce, please get in touch to arrange an initial consultation.
Our divorce and family law solicitors are based in London, Manchester, Bristol, Cardiff, Birmingham, Southampton and Taunton.