How the new Capital Gains Tax rules could benefit divorcing couples

UK resident individuals are subject to capital gains tax on gains arising on the disposal of their worldwide assets.

Current rules

Spouses and civil partners can transfer assets such as property, shares or business interests between themselves at no gain / no loss for capital gains tax purposes, if the transfer takes place within the tax year in which the permanent separation occurs. 

Disposal of assets between spouses and civil partners after the end of the tax year of permanent separation are deemed to occur at market value. Consequently, as is quite often the case by the time of a divorce or a dissolution of a civil partnership, capital gains tax arises when assets are transferred as part of the financial settlement.

Proposed changes to the legislation, announced on 20th July 2022 will introduce a much more favourable tax treatment for disposal of assets between separating spouses or civil partners on or after 6th April 2023.

Changes follow recommendations made by the Office of Tax Simplification and provide for the following:

  • Couples will have up to three tax years from the year in which they permanently separated to transfer assets on a no gain, no loss basis.
  • If the transfer is made as part of a formal financial settlement on divorce or dissolution of a civil partnership, the couples have potentially an unlimited period to benefit.
  • Individuals who have transferred their interest in the former family 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 on the receipt of those proceeds that applied when they transferred their original interest in the home to their ex-spouse or civil partner.
  • A spouse or civil partner who retains an interest in the former family home will have the option to claim Private Residence Relief when it is sold.

The proposed changes will undoubtedly only have a positive impact on spouses and civil partners who are separating, providing them with extra time to resolve financial matters without the pressure of needing to resolve matters within the tax year of permanent separation (often an unrealistic time scale)

to avoid further depletion of funds of capital gains tax.

If you are considering divorce or separation and require advice, we are here to help. Please contact our expert family team.