Capital Gains Tax changes on separation

When a relationship breaks down tax planning is not often at the top of the agenda for couples, but the timing of the transfer of assets can make a big difference to the financial burden of both parties.

Transfers of assets such as houses, shares or business interests between spouses or civil partners are ordinarily made at no gain/no loss but until now, for separating couples, this only applies until the end of the tax year in which they are living (or lived) together.

With many divorces taking a number of years to finalise, HMRC have now extended this window of opportunity to three years, which will give many couples more time to organise and transfer their assets at what can be a difficult time.

As well as allowing any transfers of assets within three years, the no gain/no loss treatment will also apply for transfers between spouses taking place as part of a formal divorce agreement.

As part of the separation process, one spouse will usually move out of the family home, which can result in a tax charge when the family home is sold. The scope of Private Residence Relief, which gives relief for a property occupied as a main home, will now allow couples to claim relief where one spouse moves out prior to any sale. Likewise, where one spouse transfers the property to the other spouse but will receive a percentage of the proceeds on a future sale, Private Residence Relief will also apply.

The new rules will come into place from 6 April 2023 but they could be of benefit to couples who are currently in the process of getting divorced and are outside of the current timeframe to transfer assets at no gain/no loss.

These changes are very welcome and help to prevent unexpected tax liabilities arising on divorce for couples whether that be on their home, investment property or shares. However, the above commentary is based on an overview of the changes published by HMRC and it remains important keep abreast of the published changes to the legislation and to obtain tax advice to ensure that all aspects of your individual circumstances have been taken into consideration.