Divorce and Capital Gains Tax – Update

In July 2022 draft legislation was published which completely overhauls the current law relating to Capital Gains Tax and Divorce.

When reaching a financial settlement on divorce or dissolution of a civil partnership, parties’ will often agree to transfer assets such as the family home into one of the parties’ names, they may also transfer business interests or shares.

The current law allows a property to be transferred from one spouse or civil partner to another free of any capital gains tax, on a ‘no gain or no loss’ basis unless they are separated. Once a couple have separated they only have until the end of the tax year of separation to take advantage of this. Transfers taking place after the end of the tax year of separation are treated as normal disposals for CGT purposes. This means that if a couple separated in February 2023, they would only have until the end of March 2023 to transfer assets to transfer assets free of CGT liability. This adds additional pressure to separating couples at an already extremely difficult time in their lives.

The Changes to the Current Law Are Part of the Finance Bill 2022-2023

From 6 April 2023, spouses and civil partners will be given up to three full tax years in which to make what are known as ‘no gain or no loss’ transfers of assets between themselves when they cease to live together. It is also proposed that they are given unlimited time if the assets are part of a formal divorce agreement.

This change in the law will provide relief to separating spouses and civil partners as it will help to reduce both time and financial pressures during their separation.