Capital Gains Tax (CGT) rules for divorcing couples set to change April 6, 2023

The Government has announced that CGT rules for divorcing couples are slated to undergo a change by the 6^th of April, 2023. Presently, if a couple wants to transfer assets between themselves at any time after the tax year once they have separated, they may be liable to pay tax.

What do the changes mean for divorcing couples?

The move was music to many couples’ ears, as this means divorcing couples will no longer have to bear tax burdens from next year. The new rules will not only benefit wealthy taxpayers with high-value assets, but also those whose sole asset is their home. This easing of financial burden will definitely help separating couples who may already be going through a generally stressful time.

The new rules will now grant couples a maximum of three years, starting from their date of divorce, to share the assets, and that too without triggering any tax dues. In addition, couples will have an infinite amount of time to settle if the assets in question already form part of a formal divorce agreement.

One senior personal finance analyst has dubbed the move ‘very welcoming and encouraging’, stating that in the midst of a divorce, couples are already dealing with enough stress and pressure to move as it is. And that they certainly don’t need the trauma of running against the clock to split their assets and finances before the tax year ends.

Furthermore, the new law allows couples to claim PRR or Private Residence Relief if they moved out of their marital home but still have a share in it, that is, if the property ever gets sold. And those who transferred their property interest to their ex will be able to apply the exact same tax treatment to the property sale as they did at the time of transfer.

It should be noted that not all couples might benefit from the new rules, although that’s more a matter of timing than anything else.

For instance, couples separating in the current tax year of 2022/23 will be able to benefit indefinitely from the new rules – any transfers before April 5, 2023 will be on a ‘no gain, no loss’ basis – so, the new extended time period will apply to transfers done either on or after April 6, 2023.

Couples who separated before April 6, 2022, may only benefit if they are ready to defer their assets transfer until after April 6, 2023. This, unfortunately, may not be ideal for their current circumstances, or even something that’s possible – depending, of course, on the stage of divorce they are currently at.

Similarly, couples who separated a few years go will only benefit if transfers are made after April 6, 2023, and only as part of formal arrangements which have yet to be concluded.

Interested in learning more about how the new Capital Gains Tax rules might have an impact on your asset transfers during divorce? Get in touch with us for free initial consultation now.

Another useful link from HMRC   https://www.gov.uk/government/publications/capital-gains-tax-transfers-of-assets-between-spouses-and-civil-partners-in-the-process-of-separating/capital-gains-tax-separation-and-divorce