How New Capital Gains Tax Rules Impact Divorce
30th March, 2023
New Capital Gains Tax rules could provide a huge step forward in assisting separating spouses/civil partners to part ways in an as tax efficient manner as possible.
The Spring Budget 2023 confirmed that the government’s proposals put forward in the Autumn Statement 2022 will come into force on the 6th April 2023. In this article, we consider how the proposed changes to the Capital Gains Tax rules are expected to affect the transfer of assets between spouses and civil partners who are in the process of separating.
About the Tax Rule Changes
In July 2022, the Office of Tax Simplification reviewed the current rules relating to separating couples and proposed several recommendations, which the government have agreed to implement from 6th April 2023.
What are the current Capital Gains Tax rules for divorcing or separating couples?
Under the current Capital Gains Tax rules in the UK, transfer of assets between ex-spouses/civil partners, are made on a ‘no gain or no loss’ basis provided that they occur before the end of the tax year the couple stopped living together. This means, in those circumstances, any gains or losses from the asset being transfer are not subject to Capital Gains Tax.
However, if the transfer of the assets occurs after the tax year in which the spouses stopped living together, then any gain will be subject to Capital Gains Tax in the normal way. The amount of tax payable will be impacted other factors including whether the divorce has finalised.
The divorce process can be quite time-consuming and by the time a financial settlement is reached, and assets are eventually transferred or sold Capital Gains Tax liabilities often arise.
How do the new Capital Gains Tax rules affect divorcing or separating couples?
The proposed rule changes coming into effect from April 2023 are a welcomed change likely to benefit divorcing and separating couples as they provide greater period of time to transfer assets without the risk of being charged Capital Gains Tax.
The changes provide separating spouses/civil partners with up to 3 years after the tax year they stopped living together in which to make a ‘no gain, no loss’ transfer. This is an increase from the 1 year previously provided.
In addition, where there is a formal divorce agreement (otherwise known as a financial consent order), the proposed changes allow for spouses to make a ‘no gain, no loss’ transfer of assets for an unlimited period of time.
In relation to the former matrimonial home, the new Capital Gains Tax rules provide that:
- Subject to certain conditions, Private Residence Relief (PRR) may be available to the spouse or civil partner that has vacated the family home but still has an interest in it.
- Where a spouse/civil partner transfers their interest in the former family home to their ex-spouse/civil partner and opts to receive a percentage of the sale proceeds when that home is eventually sold, they are able to apply the same tax treatment to the proceeds that applied when they originally transferred their interest in the family home to their former spouse/civil partner.
The rule changes do not come into effect until the 6th April 2023 and are still subject to change.
How will the new Capital Gains Tax rules impact you?
It is important to note that the impact of the new Capital Gains Tax rules will vary between couples and you should seek specialist advice tailored to your own individual circumstances. Tax rules also change regularly and so it’s important to obtain up to date advice at the time of issuing divorce/dissolution proceedings.
How Can Our Divorce Solicitors Help?
Whether you are contemplating divorce and want to know your options, or you simply wish to find out more about the potential implications of the new capital gains tax rules for your current situation, our team of experienced divorce solicitors are happy to help. Get in touch with the Ward Hadaway divorce team today.
If you would like support or advice about any of your family circumstances, please complete the form below and a member of the team will be in touch to find out more.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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