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New Capital Gains Tax Rules Affecting Divorcing Couples

In response to the Office of Tax Simplification (OTS) second Capital Gains Tax report ‘Simplifying practical, technical and administrative issues‘, the UK Government are introducing changes to the Capital Gains Tax (CGT) rules that apply to transfers of assets between spouses and civil partners who are in the process of separating.

Currently married couples can transfer assets between each other free of CGT as the transfer is treated at no gain or no loss.  This only applies to transfers up to and including the tax year of permanent separation.

At present, if a couple transfers assets between themselves any time after the tax year in which they separated, the transfer is subject to CGT and there may be tax to pay. However from 6 April 2023, the new rules will give them an additional three years after the year they cease to live together to transfer assets tax free and unlimited time when a transfer is part of a formal divorce agreement.

Where a spouse of civil partner has maintained a financial interest in the former family home following separation, they will be given an option to claim Private Residence Relief (PRR) when it is sold.

The proposed changes will also allow those 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 to, apply the same tax treatment that applied when they transferred their original interest in the home to their ex-spouse or civil partner, to the proceeds received when that home is eventually sold.

These changes apply to disposals that occur on or after 6 April 2023 and are designed to make the CGT rules fairer for those spouses who are separating or divorcing and are in process of distributing assets between themselves.

Full details of all the changes can be found on the GOV website here.

For more information on capital gains planning, or any advice regarding your tax position, get in touch with our Private Client Taxperts via [email protected] or call your local office.

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