Significant changes have been introduced to divorce law, improving practicality and fairness within the system. These changes provide divorcing couples with more time and flexibility in handling their financial affairs, and this extends to Capital Gains Tax (CGT) as well.

We can advise you on the recent changes in capital gains tax rules for divorcing couples at our Potters Bar, Hertford, and Finchley offices.

On 6 April 2023, key changes to Capital Gains Tax came into effect, offering divorcing couples more time to consider how best to split their assets without the potential burden of CGT.

Here is a summary of the main changes that will impact couples facing separation:

Transfer of Assets at No Gain, No Loss

Spouses and civil partners will have the option of transferring property to each other on a “no gain, no loss” basis in the following situations:

  • Up to three years after the year in which the couple ceases to cohabit as spouses or civil partners.
  • Any period of time where the transfer occurs as part of a formal divorce settlement.

This new rule is a substantial improvement from the previous scenario, where couples separating at the beginning of April had only a few days to arrange their affairs without incurring a potential CGT liability.

Please note that ‘no gain, no loss’ effectively defers the responsibility for any inherent gains within the transferred assets from one party to the other. The acquiring spouse will be treated as if they had acquired the asset at the date and for the amount that the transferring spouse originally did, regardless of how long ago that may have been. 

This means the acquiring spouse assumes all potential tax liability, not just the gain since they received the asset. To determine the true value of assets transferred, you should consider the inherent gains and losses within those assets.

Discover more about capital gains tax rules for divorcing couples at our Hertford, Finchley, and Potters Bar offices.

Extending Relief from Tax on the Sale of the Former Matrimonial Home.

If a spouse or civil partner keeps an interest in the former matrimonial home (FMH), they have the choice to claim Private Residence Relief (PRR) when the property is sold.

Individuals who transfer their interest in the FMH to their ex-spouse or civil partner, and are entitled to a percentage of the proceeds upon the eventual sale, can apply the same tax treatment to those proceeds as when they initially transferred their interest.

Learn more about capital gains tax rules for divorcing couples at our Finchley, Potters Bar, Hertford offices. We are ready to assist you.    

Strategising Tax-Efficient Financial Settlements

The extension of the ‘no gain, no loss’ treatment offers valuable time for separating couples to organise their financial affairs without worrying about unwanted Capital Gains Tax (CGT) liabilities. This is a positive development as it:

  • Makes it easier to transfer assets without the risk of a “dry tax charge” when there are no cash proceeds involved.
  • Simplifies the process of determining the date of disposal for separating couples.
  • Removes complications around whether CGT holdover relief is available on asset transfers after the year of permanent separation.

However, there are complexities to consider, especially when it comes to other asset disposals. 
If you are ending your relationship and need advice contact our specialists at Martin Shepherd Solicitors, Antointte Doyle acd@martinshepherd.co.uk or Maria Scott mscott@martinshepherd.co.uk