Did you know that there has been a recent change to how divorcing couples are treated for capital gains tax (CGT) purposes when transferring assets between themselves? The new rules came into effect from 6 April 2023.
Detailed planning required
When couples reach a financial settlement on divorce, or dissolution of a civil partnership, they often agree to transfer assets, such as the family home, into one of the parties’ names, they may also transfer business interests or shares.
Previously, spouses and civil partners were able to transfer assets between themselves at ‘no gain, no loss’ for CGT purposes, up to, and including, the year of permanent separation. After the year of permanent separation, any transfer of assets was subject to CGT with the deemed disposal proceeds being the market value of the asset.
What’s changed?
The new rules mean that:
- Divorcing couples will have up to three tax years after the tax year that they stopped living together in which to make a ‘no gain, no loss’ disposal for CGT purposes.
- A no gain/no loss treatment will 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, will be given an option to claim private residence relief (PRR) when it’s sold.
- 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 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.
- If the Final Divorce Order occurs earlier than the agreed three years, then that date would be the new date to work to. Remember, this can be delayed where necessary.
Reduction of both time and financial pressures
Shelley De’Worringham, Head of Family: Divorce, Child Contact & Finances at Alsters Kelley said. “We heartily welcome the new rules. Not only do they remove the complexities around establishing the date of disposal for various assets, but they also provide more time for spouses and civil partners, in the process of separating, to transfer assets between themselves and organise their financial affairs without incurring a possible Capital Gains Tax charge.”
Shelley continues. “It’s worth remembering that these new rules do not mean that payment of CGT is avoided, instead payment is effectively deferred. It will be greatly beneficial to those parties who are involved in more complex divorce/separation proceedings, as it means that more time can be spent on the divorce considerations, including arrangements for children, rather than just Capital Gains Tax considerations.”
Initial Meeting
If you are considering a divorce/separation and wish to discuss your options, we offer a free initial ‘options’ call (which usually lasts up to 30-minutes), during which we will be able to offer general advice and discuss the most suitable option for your first steps. Alternatively, if you are looking to obtain specific legal advice, without any obligation to instruct, then we offer an initial fixed fee meeting for £300 plus VAT (20%).
And thanks to our network of offices covering Coventry, Leamington, Nuneaton, Stratford-upon-Avon and Southam we are very accessible too. Please contact Shelley De’Worringham, Head of Family: Divorce, Child Contact & Finances at Alsters Kelley on 01926 356000 or email shelley.deworringham@alsterskelley.com.
Call now on 01926 356 053 to book an initial consultation for £300 plus VAT to speak to one of our Family Law specialists.