Divorce and tax – proposed new rules from April 2023

Once the festive mood has subsided, the beginning of a new year is frequently mentioned as the busiest time for divorces among couples.

Any couple going through a divorce is under stress, and the current tax laws have made matters worse by allowing unexpected tax liabilities to arise when assets are transferred between divorcing couples.

The current position

On a “no gain no loss basis,” a spouse or civil partner may transfer assets to their spouse or civil partner entirely free of capital gains tax (CGT).

When a couple is separated, the situation is different. Couples who have separated have only until the end of the tax year in which they separated to make the free of CGT transfers. Any transfers of assets made after the end of the tax year of separation are viewed as regular disposals for CGT purposes.

Separation refers to either a court-ordered separation or a separation under circumstances that indicate the separation is likely to be permanent.

The proposed new rules

Starting on 6 April 2023, the time period for “no gain, no loss” transfers that are exempt from tax is extended to three full tax years, from the end of the tax year of separation. If the sale of the asset is a part of a formal divorce agreement, this time frame may be extended.

Waiting until after 6 April 2023 to transfer any assets may be advantageous for couples who are currently going through a divorce because the new rules will be in effect as of that date.

Gains on the sale of the former marital home are calculated differently now as well. Even though they didn’t live in the house after their divorce, the person who moved out may be able to get main residence relief on their share of the gain if there is an agreement that they will get a portion of the proceeds from any future sale.

The above new rules still need to receive parliamentary approval.

Tax issues arising from separation and divorce can be complicated, so it is always best to seek professional advice. Beavis Morgan LLP will gladly assist you with any questions you may have.

Contact Neal Groves, Tax Partner on T. 020 7549 2411 or E.neal.groves@beavismorgan.com.