You’ll probably be aware that special rules apply to Capital Gains Tax when spouses or civil partners transfer chargeable assets to each other. However, many people are not aware of the rules regarding CGT liability on divorce or separation. In this post, we take a look at the current rules and some big changes that are in the pipeline.

Current rules regarding CGT liability on divorce / separation

If two spouses or civil partners separate, they can transfer chargeable assets to each other on a ‘no loss no gain’ basis. They must do this during the tax year of their separation. However, from the following tax year, such transfers are subject to normal CGT rules. In other words, they could land the benefiting partner with a hefty tax bill.

Similar rules apply when a separated couple sell their shared home after one partner has left the house. In brief, CGT is payable unless they sell the property less than nine months after separation. Currently, this can potentially be avoided if the property is transferred as part of a divorce settlement. This requires claiming private residence relief under S225B TCGA92.

However, in 2021, a report by the Office of Tax Simplification (OTS) argued for a rule change. It said: “it is unrealistic to expect separating couples to have resolved their affairs by the end of the tax year of their separation”. It recommended allowing ‘no loss no gain’ transfers for at least two tax years after separation.

Government has accepted the OTS’s broad argument. As a result, the Finance Bill 2022-23 will usher in a variety of changes that affect CGT liability on divorce and separation.

Proposed rules regarding CGT liability on divorce / separation

Under the new rules, spouses and civil partners will be given up to three tax years to make ‘no loss no gain’ transfers. In addition, they will have an unlimited period in which to make these transfers, provided they are made in accordance with a formal divorce agreement or a court order.

The rules concerning the family home will also change. Under the new legislation, a partner who retains an interest in the former shared home will have the option to claim private residence relief when it is sold. This holds true even when they sell the property many years into the future.

Do you need help with a divorce?

The proposed rule changes regarding separation and CGT are very welcome. They will make it much easier for couples to reach a settlement. However, if you are currently in the process of separation or divorce, it’s a good idea to get tax planning advice as early as possible. With the right help, you can minimise financial worries at what is already a stressful time.

Need further advice on any of the topics being discussed? Get in touch and see how we can help.

First name is required
Last name is required
Phone number is required
Email address is required
A message is required
Yes! Please sign me up to receive THP’s Email Newsletter.
By submitting this form you agree to our Privacy policy.
Avatar for Jon Pryse-Jones
About Jon Pryse-Jones

Since joining THP in 1978, Jon Pryse-Jones has been hands on with every area of the business. Now specialising in strategy, business planning, and marketing, Jon remains at the forefront of the growth and development at THP.

An ideas man, Jon enjoys getting the most out of all situations, “I act as a catalyst for creative people and encourage them to think outside the box,” he says, “and I’m not afraid of being confrontational. It often leads to a better result for THP and its clients.”

Jon’s appreciation for THP extends to his fellow team members and the board.  “They really know how to run a successful business,” he says.  He’s keen on IT and systems development as critical to success, and he continues to guide THP to be at the cutting edge and effective.

Join The Conversation
ICAEW
Cyber Essentials Plus certification
Sign up for our Newsletter