A new tax year means new Capital Gains Tax rules for separating couples

When a couple divorces or separates, the transfer of assets between them previously triggered a Capital Gains Tax liability.

However, the Chancellor Jeremy Hunt announced during his spring Budget that the Spring Finance Bill 2023 would contain legislation extending the period of time separating and divorcing couples will have to benefit from the CGT relief on the transfers of assets.

What is Capital Gains Tax?

CGT is payable when people sell or gift certain items worth more than £6,000 such as antiques or art, or assets including second homes and shares held outside of an ISA or PEP. It is a tax on the profit made on the disposal of assets. The gain realised in excess of the personal allowance is taxed; for example, a property bought for £200,000 and sold later for £350,000 realises a gain of £150,000.

The tax brings in millions of pounds to the treasury, but as a whole only accounts for approximately 1.5% of all tax receipts.

Capital gains tax planning is essential for anyone looking to dispose of assets and given these changes, they may wish to consider timing the ‘disposal’ of their assets or alternative forms of ownership, for example holding buy-to-let investments in a limited company structure.

Individuals in the basic income tax band pay 10% on their gains and 18% on gains realised with a residential property.

Higher and additional rate taxpayers pay 20% on gains and 28% on residential property.

What are the new CGT rules for separating couples?

As of 6 April 2023, Capital Gains Tax rules changed for thousands of separating spouses or civil partners who may be transferring assets.

Here’s a summary of the new rules:

1. Separating spouses or civil partners are given up to three years after the year they cease to live together in which to make no gain/no loss transfers.
2. No gain/no loss treatment will also apply to any assets that separating spouses or civil partners transfer between themselves as part of a formal divorce agreement.
3. A spouse or civil partner who retains an interest in the former matrimonial home is given an option to claim private residence relief (PRR) when the property is sold.
4. Individuals who have transferred their interest in the former matrimonial home to their ex-spouse or civil 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.

The new rules are a welcome change and allow extended relief regarding CGT.

This will allow those parties involved in more complex proceedings to devote more time to resolving the overall financial settlement terms, rather than devoting precious time to CGT considerations and deadlines.

This extended benefit also allows the parties to retain more of their wealth for distribution between themselves, rather than see their funds depleted in tax charges.

We’re here to help

If your relationship has broken down and you are looking to separate, our specialist lawyers are here to guide and support you throughout. If you need advice on the new Capital Gains Tax rules then please do get in touch with one of our family law experts.