Capital Gains Tax Rules for Divorced Couples Ease

The Government has announced plans to relax capital gains tax (CGT) rules in divorce settlements, giving spouses and civil partners more time to transfer assets without incurring CGT charges.

If the new rules are approved, they will come into effect from 6 April 2023.

Newly separated couples are currently given until the end of the tax year to transfer assets without incurring CGT, a period known as ‘no gains, no loss’. However, if the transfer takes place in the tax year after their separation, but before they are legally divorced, the assets are transferred at deemed market value, and CGT could be due.

The main issue with CGT during divorce proceedings is that it incurs another charge when money is already being spent on the divorce itself, so cash may be low for each individual.

If approved, the changes will mean that separating spouses or civil partners will be given up to three years after the year they cease to live together to make a no gain, no loss transfer. Otherwise, they will have until the decree absolute is granted, provided the transfer is made in accordance with a formal divorce agreement or court order.

Any person who holds an interest in the former matrimonial home will be given a chance to claim private residence relief up to the point of sale, even if this is many years into the future.

However, the property must be empty because of the divorce for this to apply. This is also true where partners have transferred their interest in the former matrimonial home to their ex-spouse or partner but retain the right to a share of any future proceeds.

Any changes will not affect the CGT on sold assets as part of the divorce proceedings, and people will still have to pay CGT within 60 days of the sale, if it relates to property which is not their primary residence.

Ask us about your CGT obligations.