Capital Gains Tax (CGT) is often forgotten when separating couples are discussing how to divide their assets on separation or divorce.  Couples may have buy to let properties or other assets which will give rise to a CGT liability on a disposal, which will include a transfer as well as a sale.

 

Where the CGT arises on a disposal of residential land, the tax is payable within 60 days of the disposal.  It is payable by the person transferring the asset rather than the person receiving it, even if no monies are actually paid at the time.  If tax is not paid on time then interest and penalties will be payable.

 

The current law states that married couples have until the end of the tax year in which they separate to transfer assets between themselves at ‘no gain no loss’.  This means that there is no immediate tax payable on transfer.  It must be remembered that each party takes over ownership of the asset at the original “base cost”, so that the tax could just be deferred until a subsequent disposal.

 

Once the tax year of separation is over any transfers currently taking place between the couple are calculated at market value, ie the assets will be deemed to be sold to the receiving party at market value and the CGT will be calculated on that figure.

 

CGT is a very complex issue before any assets are transferred the separating couple should take legal advice and accountancy advice on potential tax consequences of their specific course of action.

 

On 20 July 2022, HMRC published draft legislation for the Finance Bill 2023 to amend the CGT rules so that for disposals on or after 6 April 2023:

 

  • separating spouses or civil partners will be given up to three years after the year they cease to live together in which to make no gain or no loss transfers
  • no gain or no loss treatment will also apply to assets that separating spouses or civil partners transfer between themselves as part of a formal divorce agreement
  • a spouse or civil partner who retains an interest in the former matrimonial home be given an option to claim Private Residence Relief (PRR) when it is sold
  • individuals who have transferred their interest in the former matrimonial home to their ex-spouse or civil partner and are entitled to receive a percentage of the proceeds when that home is eventually sold, be able to apply the same tax treatment to those proceeds when received that applied when they transferred their original interest in the home to their ex-spouse or civil partner

 

It must be remembered that this is currently just consultation and that until the law is changed the current position will continue to apply

 

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