The government recently announced a shake-up of capital gains tax rules. Solicitor Victoria Aked explains what that could mean for divorcing couples.
When dealing with divorce, and more specifically, the division of matrimonial assets, capital gains tax (CGT) is one of most important tax liabilities to consider.
At present, married couples, or those in a civil partnership, benefit from a capital gains tax exemption which allows them to transfer assets of any value (for example, property) between themselves without any CGT liability being accrued. This is known as the “no gain no loss” principle.
However, if spouses separate the ‘no gain no loss’ principle is only available in the remainder of the tax year in which the separation happens.
The Draft Finance Bill 2023 looks set to change these rules. Couples will now have up to three years after they separate to transfer assets and benefit from the ‘no gain no loss’ principle. Furthermore, the time limit will become unlimited if the assets are subject to a formal divorce agreement, (i.e. a financial remedies court order).
In addition to the above, the proposed legislation also introduces special rules which will apply to spouses who have left the family home whilst still maintaining a financial interest in the same.
Currently, in circumstances where one spouse leaves the family home and has a ‘deferred interest’ in the same, (i.e. they are due to receive a share from the net sale proceeds at a later date), they may find themselves having to pay CGT when the house is eventually sold.
Under the new rules, it is proposed that the spouse who has vacated the family home can seek to claim private residence relief (PPR) when the house is eventually sold, thus removing any CGT liability.
Of course, the spouse who has vacated will need to consider whether this is appropriate in all the circumstances, particularly if they have moved into a new property which they have purchased for themselves, because the spouse who has vacated cannot claim PPR twice for the same period.
The proposed changes, due to come into effect in April 2023, will be welcome indeed for many couples who are separating.
They will give couples more time to reach a financial settlement and transfer assets between themselves without the risk of incurring CGT liability.
Of course, as with all these things, it is wise to ensure that any couples going through a separation seek appropriate legal and financial advice.
If you are going through a separation and would like to discuss the legal issues surrounding divorce, matrimonial finances or child arrangements, please contact Victoria Aked of Knights (based in Kings Hill, Kent) at email@example.com for a discussion about your options.