The rules surrounding Capital Gains Tax for separating and divorcing couples are being relaxed

As Family lawyers we try to relieve the stress of a divorce or dissolving a civil partnership wherever possible as we know it can be one of the most emotionally and mentally stressful periods of a person’s life.  

One of the great stresses is the current rules in place surrounding Capital Gains Tax (CGT) due to the restricted timeframe in which divorcing couples have to make transfers of assets. As lawyers, we don’t advise on tax but we do signpost clients to take advice in circumstances where we believe it will be relevant.

The existing rules allow for spouses and civil partners to make “no gain no loss” transfers, free of CGT, as they choose.

But when a couple separates, the rules around transfers becomes much stricter and the couple must agree and complete all transfers (including properties or shareholdings) within that same tax year as the separation in order to avoid an unwelcome CGT bill. In fact, one person moving out of the matrimonial home can see them penalised, after a period of time. These rules are impractical and can put many couples under pressure to try and agree a division of their finances before they are ready to, just to try and save tax.

The Office of Tax Simplification recognised the impracticality of these rules and the Finance Bill 2022/23 will bring in new measures on 6 April 2023 to CGT which will make the rules fairer for married couples and civil partners who are separating. The policy objective is to give couples more time to transfer properties and assets between them without incurring a tax bill by:

• Giving up to three years to transfer assets after the couple stop living together, rather than just what’s left of the tax year
• Providing unlimited time if the assets are the subject of a formal divorce agreement, such as a court order or separation agreement

The new rules will not only reduce the financial pressure on divorcing couples but will also avoid parties having to choose to live in the same household during financial settlement negotiations, in order to avoid a potential tax bill, where it is often not suitable or appropriate for the family emotionally.

This should come as welcome news for couples who are divorcing or dissolving their civil partnership as the burden of time constraints and the threat of a tax bill is relieved while they try to come to an agreement.

If you want to discuss these issues further please contact one of the Family Team at BPE and ultimately seek tax advice from a qualified accountant to determine whether you have any exposure to CGT.

These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.