6th April: changes to CGT legislation for Divorcing Couples takes effect!
Alistair Dobson, Associate Solicitor
Family Law Team, Lawson-West Solicitors
Market Harborough
As the new tax year for 2023/2024 starts on 6 April 2023, more flexible rules on the transfer of assets between spouses and civil partners who have separated comes into force, allowing couples three years to calculate CGT on the sale of their joint assets.
What are the existing rules?
Currently, the transfer of assets between spouses and civil partners who are living together are made on a 'No gain - No Loss' basis in any tax year in which they are living together. So, any gains or losses from the transfer are deferred until the asset is eventually disposed of by the receiving spouse or civil partner, who will be treated as having acquired the asset at the same original cost as the transferring spouse or civil partner.
Therefore, when spouses or civil partners separate, 'No gain - 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 Capital Gains Tax purposes.
What will the new proposed rules be?
The Office of Tax Simplification reviewed the rules relating to separating couples in July 2022 and proposed a number of recommendations which the Government has agreed to implement from April 2023.
Once The Finance Bill 2022-2023 is law on 6th April, with confirmation of the changes expected, separating spouses or civil partners will have up to three years after the year they stopped living together in which to make 'No gain - No Loss' transfers.
What is meant by 'No gain - No Loss'?
'No gain - No loss' treatment is essentially a deferral of CGT until the asset is eventually disposed of.
The 'No gain - No Loss' treatment also applies to other assets that separating spouses or civil partners transfer between themselves as part of their formal divorce agreement, things like cars or money in the bank.
The spouse or civil partner who has transferred their interest in the former matrimonial home is entitled to receive a percentage of the proceeds when that home is eventually sold (assuming it has made a profit and not in negative equity).
The spouse or civil partner who retains an interest in the former matrimonial home will be given an option to claim Private Residence Relief (PRR) when it is sold. PRR applies to an individual when you have one home and you've lived in it as your main residence for all the time you've owned it.
Benefits
Alistair comments:
“This is welcome news. Divorcing couples will now have more time to transfer assets between themselves as part of their financial settlement. This will be far better that the current legislation, where divorcing couples may take far longer than a year to complete their financial settlement, with many people finding themselves faced a CGT tax bill by the time their assets are transferred."
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See the CGT elements of The Finance Bill 2022-2023 here...
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