Capital Gains Tax, separation and divorce

28 August 2020

The Chancellor has, very recently, asked The Office for Tax Simplification to undertake a review of Capital Gains Tax.

This short article highlights how Capital Gains Tax (CGT) can affect couples in the process of separation and divorce or in the case of civil partnerships, dissolution of their relationship.

In broad terms, CGT is payable whenever any individual disposes of an asset, including a property, at a profit (a gain). Rates of CGT vary from 10% of the gain to 28%.

Assets can be transferred between married couples or those in a civil partnership and CGT is not payable immediately. CGT might still be due later on a sale, so payment of tax is just postponed. Nonetheless, at a time when cash may be at a real premium this can prove invaluable.

It is often thought, mistakenly, that this exemption is available at any time before decree absolute or a final dissolution order

In fact, it is only available in the tax year when separation takes place; up to 5 April in the tax year of separation and not afterwards.

Transfers between couples who are not married or in a civil partnership are taxable at any time.

Separating couples may also own other properties, e.g. second homes, "buy to lets", shares and other investments.

Disposing of a business or a share in a business may also trigger CGT and needs very careful consideration and expert advice about what tax is payable and what reliefs to reduce the tax bill may be applicable.

When assets are being divided on separation or divorce, it is the underlying net value which is shared, e.g. after tax, CGT.

For most couples their main asset is the family home.

For couples who are married or in a civil partnership, and for those who are not, any gain on the sale or transfer of their family home (known as their Principal Private Residence) is normally exempt.

But, in certain circumstances, if one party leaves the home, for example on separation, they could still find themselves liable for some CGT if the property is not sold or transferred within 9 months of separation. Again, this is also sometimes overlooked.

As a result, there can be all too real and sometimes unforeseen problems if there is delay in resolving the financial issues or if it takes a long time to sell the house.

CGT does not produce anywhere near as much revenue for the Exchequer as income tax, VAT, national insurance or corporation tax, but can produce real headaches and concern for those who are or who are planning to separate and divorce.

The Family Team at Wilsons work closely with colleagues able to advise on CGT and tax generally as well as tax planning and all of us are available to speak to you on the 'phone or by video-link and, hopefully, soon face to face.

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