Capital Gains Tax (CGT) rule change for divorcing couples

Capital Gains Tax changes are afoot with draft legislation having been introduced in July this year, if you would like to find out more, you can view this here.

For capital gains tax purposes, the UK tax system essentially treats couples (spouses and civil partners) as a single unit if they live together allowing ownership of assets to pass between them without triggering CGT liabilities. What then happens on separation?

Currently, couples can only transfer assets up to the end of the tax year of permanent separation on a nil gain/ nil loss basis relieving them of paying CGT at that time. This meant that for many there were unwelcome tax charges on transferring assets after that window when parties were already facing the inevitable financial stress of divorce.

“A welcome change”

From 6 April 2023 there is to be a welcome change and couples will have longer to put their affairs in order and defer any CGT. Couples, assuming no final order of divorce is made, will have 3 years from the end of the year of separation to enjoy transfers, on the basis of nil gain/nil loss and unlimited time if the transfer of asset is subject to a court order.

Further there are specific new rules relating to spouses who retain an interest in the family home (but do occupy after separation) to claim Primary residence relief when it is later sold and they realise their share.

Any party who has transferred their interest in the former matrimonial home to their ex-spouse and is entitled to receive a percentage of the proceeds on a deferred sale will be able to apply the same tax treatment to those proceeds when received, as applied when they transferred their original interest in the home to their ex-spouse

As one would expect these changes also apply to civil partners.