In July 2022 the Government published draft legislation in the form of the Finance Bill 2022-23 in which changes to the current Capital Gains Tax (CGT) were proposed. This could impact couples in the process of separating or divorcing.
Capital Gains Tax is a tax payable on the profit or gain when an asset is sold that has increased in value. The current law provides for transfer of assets between spouses or civil partners who are still living together as having no gain or no loss in the tax year in which they are living together. Gains or losses are therefore deferred until the asset is sold.
In addition, under the current legislation, Private Residence Relief (PRR) is not available after nine months. Therefore, if a spouse leaves the former matrimonial home for more than nine months, there will likely be a CGT liability on sale or transfer of the property.
Furthermore, if a spouse or civil partner transferred their interest in the former matrimonial home to their former spouse or civil partner for a percentage of the proceeds when sold, CGT would be payable on the increase in value of the charge on sale.
Under the new proposed legislation, the key provisions are that:
• Separating spouses or civil partners will be able to extend the time limit for transferring assets at no gain or loss between themselves from up to one year to up to three years after the date of separation.
• Any assets subject to an Agreement or Order to be transferred on a no gain no loss basis without time limit.
• A spouse or civil partner who retains an interest in the former matrimonial home will be given an option to claim Private Residence Relief (PRR) when the family home is later sold.
• A spouse who transferred their interest in the former matrimonial home to their former spouse or civil partner, and are to receive a percentage of the proceeds when the family 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 property to their former spouse for civil partner.
The changes are due to apply to disposals which take place on or after April 6th 2023.
