Divorce rule changes
1st January 2023
Divorce and CGT
Under current legislation, married couples and civil partners can transfer chargeable assets between them without incurring CGT under the ‘no gain, no loss’ principle. However, for separating couples, this only applies until the end of the tax year of separation.
A couple who separated in February 2022 could therefore only transfer assets ‘free of tax’ until 5 April 2022. Chargeable assets transferred after that date could incur CGT.
The Government has released draft legislation which allows couples up to three tax years from the year in which they cease to live together as a married couple to transfer assets on a no gain, no loss basis, and essentially an unlimited period if the transfer is made as part of a formal divorce agreement.
Private Residence Relief (PRR)
As the rules stand, where an individual moves out of their main residence, they are deemed to occupy the property for the last 9 months of ownership for PRR purposes.
However, the divorce process can often exceed 9 months, leaving the spouse who moved out with a potential CGT liability, plus the requirement to report and pay under the 60-day reporting rules.
From 6 April 2023, the new rules should ease the pressure for separating couples by removing the worry of any CGT which could arise.
From 6 April 2023:
• A PRR claim will be possible for a spouse or civil partner who retains an interest in the former matrimonial home, but no longer lives in it as their main home.
• PRR will also be available where one spouse transfers the property to the other spouse but will receive a percentage of the proceeds on a future sale.
The aim of these provisions is to put the departing spouse in the same PRR position as they would have been had they not moved out and help to balance upthe tax position on a shared residence for a divorcing couple.
Disclaimer - All information in this post was correct at time of writing.
