Capital gains tax rules for divorcing couples are changing from April 2023 onwards.
Under the new Capital gains tax rules for divorcing couples, separating spouses or civil partners will be given up to three years, after the year they cease to live together, to make no gain or no loss transfers of assets; and unlimited time when the assets are the subject of a formal divorce agreement.
Capital gains tax rules for divorcing couples – Current law
The Capital Gains Tax legislation dealing with the transfer of assets between an individual living with their spouse or civil partner is found in section 58 of the Taxation of Chargeable Gains Act 1992.
This provides that transfers of assets between spouses and civil partners who are living together are made on a “no gain or no loss” basis in any tax year in which they are living together.
This means that any gains or losses from the transfer are deferred until the asset is disposed of by the receiving spouse or civil partner, who will be treated as having acquired the asset at the same original cost as the transferring spouse or civil partner.
When spouses or civil partners separate, no gain or no loss treatment is only available in relation to any disposals in the remainder of the tax year in which the separation happens. After that, transfers are treated as normal disposals for capital gains tax purposes.
Capital gains tax rules for divorcing couples – Proposed revisions
Legislation will be introduced in Finance Bill 2022-23 that will provide that:
- – separating spouses or civil partners be given up to three years after the year they cease to live together in which to make no gain or no loss transfers
- – no gain or no loss treatment will also apply to assets that separating spouses or civil partners transfer between themselves as part of a formal divorce agreement
- – a spouse or civil partner who retains an interest in the former matrimonial home be given an option to claim Private Residence Relief (PRR) when it is sold
- – individuals who have transferred their interest in the former matrimonial home to their ex-spouse or civil partner and are entitled to receive a percentage of the proceeds when that home is eventually sold, be able to apply the same tax treatment to those proceeds when received that applied when they transferred their original interest in the home to their ex-spouse or civil partner
See further details on gov.uk website here.
Impact on individuals, households and families
This measure will make fairer the process for those spouses who are separating or divorcing and are in process of distributing assets between themselves.
The change in Capital gains tax rules for divorcing couples is expected to have a positive impact on individuals by extending the period of time available to give separating couples at least three years to make no gain or no loss transfers between themselves for capital gains tax purposes. This will especially benefit those parties involved in more complex proceedings, as it means that more time can be spent on the divorce considerations, rather than Capital Gains Tax considerations.
The extension will also help avoid further depletion of household income or existing accumulated household wealth through dry tax charges for those who meet the new time period. There will be similar benefits for those individuals who are transferring assets between themselves that are listed in a divorce or separation agreement.
How can MCL Accountants help?
Contact MCL Accountants on 01702 593 029 if you have any queries regarding Capital gains tax rules for divorcing couples or if you need any assistance with the preparation and submission of your business accounts or self-assessment tax returns to HMRC.