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Recommendations by the Office of Tax Simplification (OTS) made in their second Capital Gains Tax report to extend the no gain / no loss rule for separating couples, were accepted by the Government in November 2021 and proposed changes will detailed in the Finance Bill 2022-23, with new rules effective on disposals taking place after 6th April 2023. If you’re currently in the process of getting divorced, see how you might be impacted in our blog below.
What are the current CGT rules for separation and divorce?
Under the current legislation, transfers of assets between spouses and civil partners who are living together are made on a “no gain or no loss” basis in any tax year in which they are living together. For couples that are separating, any gains or losses from the transfer are deferred until the asset is 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.
The no gain / no loss rule where there is no CGT on transfers of assets between spouses or civil partners only applies up to the end of the tax year in which they separate, disregarding that the divorce settlement or court order that transfers assets between the couple often takes place many months after the separation and may therefore lead to CGT being payable.
What are the proposed changed to CGT rules for separation and divorce?
The main change proposed is that separating spouses or civil partners will be given up to three years after the year they cease to live together in which to make no gain / no loss transfers. Most divorces would be concluded within this period. The three-year period will end earlier if the court grants a Final Order. So as an example, if separation takes place on 1st August 2022, the no gain / no loss will apply on all transfers between the couple up to 5th April 2026 unless they divorce prior to this date.
The no gain/no loss treatment will also apply to assets transferred as part of a formal divorce agreement.
The new rules will give couples the time needed to finalise the divorce without the worry of the tax implications and will also allow couples who have substantial capital which is not liquid, to divorce without the need to sell the assets to fund any capital gains tax liabilities arising.
Seek professional advice
If you are already in the process of separating from your spouse and thinking of starting divorce proceedings, be sure to seek professional advice to ensure your best interests – from a financial point of view, speak to your accountant to understand how the new Capital Gains Tax rules could impact you based on your specific situation.
From a legal and mediation perspective to ensure divorce proceedings go as quickly and as amicably as possible, ensure you obtain advice from a lawyer as soon as you’re thinking of separating from your spouse.
As a specialist Divorce Lawyer, I am available to offer advice over the phone on 07917 711 887 or you can email me directly to lindsay@lindsayjonesdivorcelawyer.co.uk. You can also download free guides & resources on my website here: lindsayjonesdivorcelawyer.co.uk. For more information on the changes to the Capital Gains Tax no gain / no loss rules, visit Gov.uk here.