Separating or divorced couples will soon face less demanding capital gains tax (CGT) rules. If a couple gets a divorce or legal separation, they will have three years after the event to make a ‘no gain, no loss’ transfer.

So, as of the 6th April 2022, separating or divorcing spouses and civil partners will have until the end of the third tax year after the year in which they cease living together to transfer assets between them with “no gain or no loss.” A possible capital gains tax charge may be delayed, giving them more time to divide up their assets.

Also, the new rules give a couple as long as they want to make a “no gain, no loss” transfer of assets that are part of their divorce settlement.

The current CGT rules for divorcing and separating couples

Under current regulations, divorcing spouses are not subject to a CGT bill for asset transfers made up to the end of the tax year of the final separation.

However, if the transfer is done in the following tax year, it is considered to have occurred at market value and there may have been a capital gain even if no money was exchanged. Therefore, if a couple divorced on 4th April 2022, they would only have until 5th April 2022, to transfer their assets without paying taxes.

The new rules as of 6th April 2023

For disposals occurring on or after 6th April 2023, the following regulations will apply:

  • Couples who are divorcing or ending a civil partnership can transfer assets without a gain or loss up to three years following the tax year in which they stopped cohabiting.
  • Assets that divorcing spouses or civil partners transfer among themselves as part of a formal divorce agreement will also be subject to the no gain/no loss rule.
  • When the former marital residence is sold, a spouse or civil partner who still has a stake in it has the opportunity to apply for private residence relief (PRR).

Moreover, the amendments provide specific guidelines for those who have assigned their rights to their former matrimonial house to their former spouse or civil partner and are¬†entitled to a share of the proceeds upon the property’s eventual sale.

They may apply the same tax treatment to those proceeds when they receive them as applied when they transferred their initial stake in the house to their ex-spouse or civil partner.

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