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Changes to Capital Gains Tax Legislation for Divorcing Couples

By RJP LLP on 16 February 2023

The new tax year 2023/24 starts on 6 April 2023 and it will see the arrival of more flexible rules on the transfer of assets between spouses and civil partners who have separated.

All spouses and civil partners can transfer assets freely between one another without incurring any capital gains tax (CGT). However if a couple separate, new rules apply; currently the CGT-free transfer rules only apply in the tax year of separation, after which different rules apply which can bring assets transferred into charge to CGT.

Given the average divorce may take far longer than a year to complete, many people will find themselves facing a CGT tax bill by the time their assets are transferred.

What are the new tax rules for divorcing couples?

The new rules provide more time for separating couples to arrange their financial affairs and from 6 April 2023 divorcing spouses or civil partners will have the benefit of the following extended reliefs:

  • Up to 3 years from the end of the tax year in which they separate to transfer assets on a no gain no loss basis for CGT purposes; and
  • Unlimited time to transfer assets on this basis where they are transferred as part of a formal divorce agreement.

In addition, if a spouse or civil partner retains an interest in what was their former matrimonial home, they will continue to be eligible for principal private residence (PPR) relief when it is sold, even where they don’t continue to live there.

The legislation also provides that if an individual transfers their interest in the former matrimonial home to an ex-spouse or civil partner immediately on separation or divorce, when the property is sold they can receive a share of the sale proceeds without suffering CGT.

These changes will mean that for divorcing couples it will be much easier to transfer assets without a need for urgency which can cause additional stress, and will remove a number of tax complexities.

Proactive tax planning for divorcing couples

Divorce is often expensive and to counter the financial implications we recommend proactive tax planning for separating couples wherever possible. This will continue to be particularly important in cases where business interests are involved.

If you would like a confidential discussion about tax implications on separation or divorce please email us via partners@rjp.co.uk

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60 Day Deadline for CGT Returns and Tax Payments

If you sell a property and incur capital gains tax on the transaction, you will need to file a tax return and also pay any tax that is due within 60 days of completion, or penalties will arise. Need help with your property taxes? Talk to us.