Capital gains tax in divorce – proposal to relax the rules

Divorcing couples are to be given more time to transfer assets without incurring capital gains tax (CGT) from April 2023, under new rules being proposed by the government.
Under the current regime, married couples and civil partners have until the end of the tax year in which they separate to transfer assets to each other free of CGT, a process known as ‘no gain, no loss’.
However, if the transfer takes place in the tax year after their separation, then it is deemed to be at market value and CGT is payable based on the gain at transfer.
See also: Business Clinic – can court force farm sale in divorce proceedings?
Inevitable challenges
Karen Blackiston, agricultural specialist at accountant Chavereys, said there are inevitable challenges in getting transfers completed within that 12 month window.
“Sadly, in most cases, separation and divorce result in fraught communication,” she said.
“Add to this dealings between solicitors, and lengthy delay to a settlement is inevitable. So what chance is there of a deal within a tax year even if negotiations commence on 6 April?”
New rules which are set to take effect from 6 April will extend the ‘no gain no loss’ period from one year to three after the tax year in which permanent separation occurs.
“Further, if assets are exchanged under a formal settlement agreement, no tax will arise even if outside this period,” Ms Blackiston explained.
Changes are also set to be introduced around claims for private residence relief (PRR) on a disposal as part of a settlement.
Currently the person who has left the family home and is not present there for more than nine months is deemed to no longer benefit from full main home PRR when it is sold.
From next April, a spouse or civil partner who retains an interest in the former matrimonial home will be given an option to claim PRR when it is sold, providing that the sale and absence from the property is due to divorce.