Major tax changes to help couples who separate and divorce

On 22 July 2022 the government released draft legislation which will change the capital gains tax position for divorcing couples. The legislation is in draft form so may change. The proposed implementation date is 6 April 2023.

The current position

Currently, married couples have until the end of the tax year in which they separate to transfer assets between themselves at ‘no gain no loss’ meaning that there would be no immediate capital gains tax (CGT) payable on transfer. Each party takes over ownership of the asset at the original base cost.

Once the tax year is over any transfers taking place between the couple are done at market value.

So what is changing?

There are 3 proposed changes

1. Extending the ‘no gain no loss’ period to "before the earlier of— (i) the last day of the third year of assessment after the year of assessment in which A and B ceased to live together, or (ii) the day on which a court grants an order or decree for A and B’s divorce, the annulment of their marriage, the dissolution or annulment of their civil partnership, their judicial separation or, as the case may be, their separation in accordance with a separation order.

2. Non occupying spouses (spouses who have moved out of the family home) to benefit from PPR relief on sale. At the moment when one party moves out of the family home for more than 9 months, they face a CGT charge when they sell or transfer the property. These new rules allow for that spouse, if they are getting divorced, to claim PPR on the sale even for the periods that they have been absent from the family home.

3. Providing relief for individuals who enter into a deferred charge arrangement over the family home. Currently, when a spouse enters into a deferred charge arrangement over the family home and is paid money at a later date, any increase in value is subject to CGT. The new rules allow an ex-spouse to claim PPR relief on any gain in value so that no CGT will need to be paid.

These changes will enable many couples going through divorce to transfer their assets between each other without incurring an immediate capital gains tax liability.

In our mediation cases we work with accountants who can provide tax advice to help couples make informed decisions about how best to share their assets on divorce. If we can help you separate and divorce and stay out of court call us on 0800 206 2258 or email hello@familymandm.co.uk. You can also book a free 20 minute calling using the online booking facility on our website.

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