Capital Gains Tax rules changed to give divorcing couples more time to transfer assets

From 6th April 2023, spouses and civil partners will be given up to three years in which to make what are known as ‘no gain or no loss’ transfers of assets between themselves when they cease to live together. It is also proposed that they are given unlimited time if the assets are part of a formal divorce agreement.

It also introduces rules that apply to individuals who have maintained a financial interest in their former family home following separation and that apply when that home is eventually sold.

The CGT rules currently state that 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 live together. Effectively, any gains or losses from transfers are deferred until the asset is disposed of by the receiving spouse or civil partner. The spouse or civil partner is treated as having acquired the asset at the same original cost as the transferor.

On separation, this special no gain or no loss treatment is only available to the end of the tax year of separation. After the tax year end, transfers are treated as normal disposals for CGT purposes.

The changes come on the back of recommendations by the Office of Tax Simplification (OTS) which said “the government should extend the ‘no gain no loss’ window on separation to the later of:

• the end of the tax year at least two years after the separation event
• any reasonable time set for the transfer of assets in accordance with a financial agreement approved by a court or equivalent processes in Scotland”

What are the changes to Capital Gains Tax rules for separating couples?

The main proposed changes are as follows:

• 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 or no loss transfers
• no gain or no loss treatment will also 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 is 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, 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 changes will make the CGT rules fairer and gives spouses and civil partners more time to transfer assets between themselves without incurring tax charges.

How we can help

TaxAssist Accountants offer a comprehensive range of services in relation to Capital Gains Tax planning. Call us today on 0131 659 5888 or fill out our online enquiry form to arrange a free initial consultation.

Date published 21 Jul 2022