Capital Gains Tax changes – how does it affect divorcing couples?

Mandeep Clair

Article written by Mandeep Clair, Solicitor, Family department

Currently, Capital Gains Tax (CGT) is not applicable on a transfer of assets between a married couple or civil partners who live together. If you are separated or divorced, this tax relief does not necessarily apply. From April 2023, under proposed legislation, spouses and civil partners that are separating will be given up to three years to make ‘no gain or no loss’ transfers of assets between themselves when they cease to live together, and unlimited time if the assets are the subject of a formal divorce agreement.

Here is a summary of the upcoming changes:

  • 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;
  • The 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; and
  • 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, will 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.

The legislative changes are expected to have a positive impact on divorcing spouses and civil partners, particularly those involved in complex proceedings as it offers more time to be spent on the divorce considerations rather than CGT concerns.

It is important to note the proposed changes as published as ‘draft legislation’ and yet to receive Royal Assent. If you would like to discuss the contents of this update or for advice on a specific family law matter, please feel free to email me or contact the Grant Saw Family department on 020 8858 6971.