Capital Gains Tax (CGT) for couples divorcing or ending civil partnership
The Old Law on CGT Relief
The time for reform on Capital Gains Tax (CGT) relief for divorcing spouses and separating civil partners is long overdue. The previous law allowed couples to dispose of assets on a “no gain or no loss” basis. However, this was only available in relation to any disposals in the remainder of the tax year in which the separation happens. This has left many couples in a race against time to dispose of their assets before the tax year is up in order to benefit from CGT relief. An often near impossible task for many couples who find themselves in lengthily financial settlement negotiations when ending their marriage or civil partnership. Even in the most amicable negotiations parties are reliant on information and documentation from third parties, this often causes further delays to the negotiation process. In addition, couples were ultimately reliant upon the Courts to finalise their financial Consent or Remedy Orders and consequently do not have much control over the timeline.
The New CGT Rules
On 06 April 2023 new legislation was introduced which has changed the CGT rules for divorcing spouses and separating civil partners. Couples can now benefit from the following changes to CGT rules.
- “No gain, no loss” CGT relief for up to three years from the end of the tax year in which they separated when disposing of assets.
- Transfers between parties which are part of a formal divorce or dissolution of a civil partnership agreement will attract “no gain, no loss” CGT relief for an unlimited time.
- The partner who retains an interest in the former matrimonial home may claim Principle Private Residence Relief upon the sale of the property.
- Lastly, 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 will benefit from being able to apply the same tax treatment on the receipt of those proceeds that applied when they transferred their original interest in the home to their ex-spouse or civil partner.
The Impact of these Changes
These changes to legislation provide a fairer way for spouses and civil partners to distribute and dispose of their assets upon separation. Individuals will now have the time to fully consider their financial positions without having to rush into decisions to avoid high CGT liabilities, particularly in situations where parties have complicated financial affairs. In addition, we can only hope that this outcome will relieve some of the pressures that many individuals may experience at the time of divorce or dissolution.
If you would like to discuss any of the issues raised in this article, or need advice about a divorce or civil partnership dissolution, please do not hesitate to contact our Family Department on 020 7625 6003 or Priya Dhokia (Head of Family & Private Wealth) by email at email@example.com