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/ 01 Apr 2020

CGT and Deemed Occupation – The Rules are Changing!

In the current Covid-19 crisis, changes to the current tax rules will likely be the last thing the majority of the British public will be worrying about. However, as family solicitors, it is our job to keep on top of developments which will impact our clients, even during these unprecedented times. Whenever we advise clients on the financial division of assets on the breakdown of a relationship, CGT is always a consideration that is at the forefront of our minds. Whilst we will always advise our clients to take tax advice from an accountant, it is important for us to have an understanding of the tax implications relevant to our clients’ particular circumstances and with new rules coming in next week, it is a good time to remind ourselves of the basics.

Any disposals that take place during the tax year of separation are not deemed to create a chargeable gain. Individuals who are particularly tax conscious may therefore decide to time their separation so that it occurs at the end of April, so as to provide themselves with as long as possible to get their finances in order (surprisingly, it does happen!).  In reality, it is very rare for finances to be resolved during the tax year of separation, even where the parties have separated right at the start of a new tax year.

Often, when matters are still on-going, one party will vacate the home (though, perhaps not at the moment). The vacating party may be liable to capital gains tax on the eventual disposal of the home, for the period they were absent. However, the vacating party has a grace period, where they are deemed to be in occupation for the purpose of Principal Private Residence Relief (PPR). Currently, the last 18 months of ownership will be considered as deemed occupation for these purposes. However, this period reduces to only 9 months from 6 April 2020.

Whilst a liability to CGT will often not occur when the family home is transferred from one party to the other (as opposed to it being sold), this change will add further pressure to separating parties in cases of a sale after one has vacated for more than 9 months. In the current crisis, matters will likely be further delayed, particularly given the Government’s latest guidance on moving homes during lock-down, and parties should be aware of the impact this will have on their tax position.

Should you have any concerns about these changes to CGT and the impact they will have on your separation settlement, please do get in touch with Hanne & Co’s Family & Divorce Team on 020 7228 0017.

CGT and deemed occupation - Hanne & Co's Maisie Lockyer looks at the upcoming rule changes

Maisie Lockyer is a Solicitor in Hanne & Co’s Family & Divorce Team

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