"This extension will, for many, reduce the CGT cost of getting divorced and give separating spouses or civil partners a bit more time to sort out their financial affairs"
The change means separating couples will be given up to three years in which to make no gain or no loss transfers of assets between themselves when they cease to live together; and unlimited time if the assets are the subject of a formal divorce agreement.
Currently, 'no gain or no loss' treatment is only available in relation to any disposals in the remainder of the tax year in which the separation happens. After that, transfers are treated as normal disposals for capital gains tax purposes.
The change also introduces some special 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 new rules will apply to disposals that occur on or after 6th April 2023.
Ami Jack, tax partner at Evelyn Partners, commented: “Following previous Office of Tax Simplification recommendations, we now have confirmation that the ‘no gain no loss window’ on separation and divorce is being extended to up to three years after the year of separation. Separating spouses and civil partners will therefore have additional time before CGT applies to transfers. Assets transferred later under a formal divorce agreement will also be at “no gain no loss”. The Government also confirmed changes that will improve the CGT position of those who retain an interest in the former matrimonial home when it is occupied by their former partners.
“Currently, couples have only until the end of the tax year in which they separate to transfer assets without incurring a CGT charge. This has been particularly problematic for those who separate close to the end of the tax year, and creates artificial pressure to speed up the division of assets to avoid creating “dry tax charges”. This extension will, for many, reduce the CGT cost of getting divorced and give separating spouses or civil partners a bit more time to sort out their financial affairs in what can be very difficult circumstances.
“Separating out finances during a divorce can be extremely complex and generally take time to resolve. Once the decision to divorce has been made, both parties will want the process to be finalised as quickly as possible, but agreement often needs to be reached on a range of different areas so managing the tax affairs of separating spouses and civil partners can be complex. Knowing they are up against the clock to transfer assets between each other to avoid incurring a possible charges to CGT has historically added stress to the process for both parties. This sensible change allows more time for them to resolve their affairs.”
