Tax planning is not often at the top of the to-do list when a couple are separating, however, the timing of asset transfers can make a huge difference for tax purposes.
The rules as things stand
Married couples and civil partners can transfer chargeable assets between them without incurring capital gains tax (CGT) under the ‘no gain, no loss’ principle. However, for couples that are separating, this only applies until the end of the tax year in which the separation occurs.
For example, a couple who separated in February 2022 could only transfer assets ‘free of tax’ until 5 April 2022. Chargeable assets transferred after that date could incur CGT.
Changes from 6 April 2023
The Government has released draft legislation, which will allow divorcing couples longer to get their affairs in order, without incurring unwelcome CGT charges.
From 6 April 2023:
- Couples will have a more generous window of 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.
- A Private Residence Relief 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.
- Private Residence Relief 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.
Couples who separated prior to 6 April 2022 will only benefit if they are prepared to defer the transfer of assets until after 6 April 2023, which may not be appropriate (or even possible) depending on their circumstances.
Please note that these provisions will only help couples who are separating following the breakdown of a marriage or civil partnership. Unmarried couples do not have access to the same ‘no gain, no loss’ provisions.
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