On 20 July 2022 the government published a policy paper on new legislation regarding capital gains tax for those going through separation or divorce. The legislation will be introduced in the Finance Bill 2022-23. The changes are due to apply to disposals which take place on or after 6 April 2023.

The key points of the new measure are that separating couples will “be given up to three years in which to make no gain or no loss transfers of assets between themselves when they cease to live together; and unlimited time if the assets are the subject of a formal divorce agreement.

[The new legislation] also introduces some special rules that apply to individuals who have maintained a financial interest in their former family home following separation and that apply when that home is eventually sold.”

Currently the law provides for “no gain no loss” treatment on disposals within the remainder of the tax year of separation, sometimes resulting in a costly process for those in lengthy proceedings.

Other new measures within the draft legislation which will benefit separating couples include:

  • 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 will be given an option to claim Private Residence Relief (PRR) when it is sold – so those couples who separate on the basis of a Mesher order will no longer need to worry about the impact of CGT if their spouse is likely to remain in the family home for a number of years (we hope!)
  • 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 – so those who conclude proceedings with an order for transfer with a charge back will not face a tax liability based on their future financial position.

The government state that they hope this will mean that separating families spend less time on CGT calculations and can focus on other matters in their settlement, as well as meaning that accumulated household wealth is not depleted by “dry tax charges”.

The draft legislation and policy paper are available here.

This note does not constitute legal or financial advice, any person experiencing a relationship breakdown is advised to seek bespoke specialist legal and financial advice.