Changes to capital gains on separation or divorce

You should be aware of proposed changes to capital gains on separation or divorce. Under present legislation any transfer of assets between couples who are separating, or divorcing are free of any Capital Gains Tax (CGT) liability as long as the assets are transferred during the year of separation/divorce.

This places undue pressure on couples to complete these transfers in time to qualify for the CGT exemption. Based on recommendations from the Office for Tax Simplification, the Finance Bill 2022-23 aims to correct this by enacting the following changes:

• separating spouses or civil partners 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 to 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.

If these changes to capital gains on separation or divorce are confirmed, they will apply to disposals that occur on or after 6 April 2023. We will try to keep you updated with developments.