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CAPITAL GAINS TAX CHANGES
by Victoria Syvret , Family Law Solicitor at Aaron & Partners LLP
The issue of Capital Gains Tax ( CGT ) is unlikely to be at the forefront of a couple ’ s mind when they are separating and for most it does not become an issue on divorce / dissolution .
Nevertheless , new tax changes that are likely to be introduced by the Finance Bill 2022 / 23 , for disposals of capital assets after 6 April 2023 , will give reassurance to many that are impacted by the current tax rules - as the new Bill seeks to reduce / remove the CGT burden for divorcing couples .
Currently , the CGT rules state that a transfer of a capital asset between spouses / civil partners is deemed to be a ‘ no gain , no loss ’ transfer and is therefore exempt from CGT . However , the trap of the ‘ no gain , no loss ’ transfer rule is that it only applies if the asset is transferred within the tax year in which the couple separates .
It is often the case that resolving financial matters upon separation , divorce and dissolution takes longer than 12 months . Accordingly , if a capital asset is transferred outside of the tax year of separation , CGT becomes relevant and an important issue to factor into the division of assets generally ( although the marital home is normally exempt from CGT in any event ).
Consequently , the transferring spouse or civil partner can be deemed to have made a ‘ gain ’ on the value of the relevant asset and have CGT to pay on the gain .
The new proposed Finance Bill , in its current form , would increase the ‘ no gain , no loss ’ transfer window for divorcing spouses / civil partners to three years from the end of the tax year of the separation . The time limit for exempt transfers is removed completely if the transfer is pursuant to a court order , known as a Consent Order , upon divorce or dissolution proceedings in which the terms of the financial agreement are recorded .
This offers more time and space for divorcing couples to agree a fully considered and comprehensive financial settlement without rushing to implement a financial agreement within the tax year of their separation .
The Bill also proposes to extend the availability of the Private Residence Relief for the party moving out of the former matrimonial home . CGT is not payable on the disposal of the marital home where it is the parties ’ main residence by claiming such Private Residence Relief . The proposed changes will mean the party moving out of the property can retain the benefit of the relief .
Although the proposed changes in the Bill are welcome , they do not remove the CGT consequence from a transfer between spouses / civil partners and it will remain a relevant consideration in many financial settlements upon separation and divorce . It is therefore vital that appropriate tax and legal advice are obtained .
For further information , please contact :
Victoria Syvret Family Law Solicitor Aaron & Partners LLP T : 07583 089 903 E : Victoria . syvret @ aaronandpartners . com
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