The Spring Budget delivered on 15 March 2023 confirmed that from the start of the new Tax Year on 6th April 2023 the tax treatment on the transfer of assets between spouses and civil partners who have separated will be more flexible.
The outgoing Capital Gains Tax rules
Married couples and civil partners may make transfers of assets between themselves during the course of the marriage without having to pay Capital Gains Tax (CGT). This applies to all assets including second homes, business interests, shares and capital. This is known as the ‘no gain, no loss’ relief.
If spouses or civil partners separate they can still benefit from the ‘no gain, no loss’ relief until the end of the tax year in which they separate. (4th April to the following 5th April). So up till now, couples who separate in March may have been left with only weeks or days to complete transfers, whereas if you separated in May you’d have 11 months to complete the transfer.
If couples missed this deadline the transferor paid CGT based on the gain in the value since acquisition of the asset (or share of asset) being transferred.
New CGT rules for separating couples
The new rules provide more time for separating couples to arrange their financial affairs, and from 6 April 2023 divorcing spouses and civil partners will have the benefit of the following extended reliefs:
- Up to 3 years from the end of the Tax Year in which they separate to transfer assets on a no gain, no loss basis; and
- unlimited time to transfer assets as long as they are transferred as part of a formal divorce agreement (usually under a Court Order).
If a spouse or civil partner retains an interest in the former family home, they will continue to be eligible for Private Residence Relief when it is sold, even where they don’t continue to live there.
The legislation also provides that if a party transfers their interest in the former family home to an ex-spouse or civil partner immediately on separation or divorce, when the property is sold they can receive a share of the sale proceeds without suffering CGT.
Capital Gains Tax and Divorce – Two key dates to bear in mind
There are two significant dates that couples and professionals who support divorcing couples need to bear in mind. The date of separation and the date of disposal.
The date of separation – You will need to confirm the date you actually separated. It is the date you start to live separate and apart from your spouse. That doesn’t necessarily mean living in different homes : separation can exist even where you continue to jointly occupy the family home if you live effectively as two separate households under the same roof sharing no common life: taking meals at different times or separately, organising the household chores separately, having independent social lives etc.
The date of disposal – The date of disposal is the date on which the property or other asset is transferred from one party to the other (or joint parties to one party). The transfer can be done ahead of a Court Order by agreement between the parties or can be done in compliance with a Court Order.
Planning for the future
Considering the division of assets and the timing of that division early in divorce or civil partnership dissolution, and taking appropriate advice, has always been critical, but especially so when considering the potential impact of Capital Gains Tax (CGT).
Divorce is often expensive and to manage the tax implications proactively tax planning and specialist legal advice for separating couples are both advisable, and particularly important in cases where business interests are involved.
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