The new rules allow couples more time to transfer assets between them without incurring liability for capital gains tax.
Separating and divorcing couples will now have up to 3 years in which to make transfers of assets between them when they cease to live together and incur no liability for Capital Gains Tax and an unlimited period of time if the assets are subject to a formal arrangement on divorce.
The changes also introduce some special rules which apply to individuals who have retained a financial interest in their former Family Home following separation and when that Home is eventually sold.
The changes apply to all disposals that occur on or after the 6 April 2023.
In summary, new legislation will be included in the 2023 Finance Bill to provide that:-
- Married couples and Civil Partners who are separating will have up to 3 years after the year in which they cease to live together to make transfers between them which will not attract capital gains tax.
- The same will apply to assets that couples who are separating or divorcing transfer between themselves as part of a "formal divorce agreement", normally an Order made in divorce proceedings either by consent or otherwise.
- A spouse or civil partner who retains an interest in the former family home will have an option to claim Private Residence Relief (PRR) when it is sold.
- Lastly, individuals who have transferred their interests in a former family home to their ex-spouse or ex-civil partner, and are entitled to receive a percentage of the proceeds when the home is eventually sold, will be able to apply the same tax treatment to those proceeds when they are received that applied when they transferred their original interest in the home to their ex-spouse or ex-civil partner.
Why are these changes so important?
In some ways, the changes announced in the Budget put the "clock back" and remove the very real financial hardship that many couples were facing on separation and divorce.
For example, a couple would separate, one would move out and there could well be a delay until the family home was sold and the partner who had moved out, possibly into rented accommodation, could find themselves facing a liability for capital gains tax while their spouse or partner who remained in the Family Home would have no such liability.
There had been a "period of grace" but gradually that had been whittled down to 9 months.
This will not apply to couples who live together but do not marry and do not enter into a Civil Partnership.
This note is prepared for information only and is not intended to offer advice.