Legislation gives separating couples time to avoid taxation on assets

Divorcing or separating couples will have more time to get their affairs in order and avoid having to pay Capital Gains Tax (CGT) when new legislation comes into force.

Currently, if any transfer arrangements for assets are not completed within the tax year of separation, they could be subject to CGT.

Proposed new legislation dealing with the transfer of assets between partners provides that transfers of assets are made on a “no gain or no loss” basis in any tax year in which they are living together.

Exemption period extended

When spouses or civil partners separate, no gain or no loss treatment is only available in relation to any disposals in the remainder of the tax year in which the separation happens. After that, transfers are treated as normal disposals for CGT purposes.

The proposals will stretch this CGT exempt period to three years for separating couples, and allow any assets which are the subject of a divorce agreement to be transferred on a no gain/no loss basis without time limit.

This will apply for all disposals that occur on and after 6 April 2023 and has been brought about following a recommendation by the Office of Tax Simplification (OTS).

The final contents of Finance Bill 2022-23 will be subject to confirmation at Budget 2022 and are expected to confirm:

  • Separating spouses or civil partners be given up to three years after the year they cease to live together in which to make no gain or no loss transfers
  • No gain or no loss treatment will also apply to assets that separating spouses or civil partners transfer between themselves as part of a formal divorce agreement
  • A spouse or civil partner who retains an interest in the former matrimonial home be given an option to claim Private Residence Relief (PRR) when it is sold
  • Individuals who have transferred their interest in the former matrimonial home to their former partner and are entitled to receive a percentage of the proceeds when that home is eventually sold, be able to apply the same tax treatment to those proceeds when received that applied when they transferred their original interest in the home to their ex-spouse or civil partner
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