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Family Law

Divorcing Couples: Changes to CGT Rules

Wednesday, April 5, 2023

Changes to the rules surrounding Capital Gains Tax (CGT) should benefit divorcing couples.

The aim of the new rules is to make the process for divorcing couples simpler, fairer and more tax efficient.

What is CGT ?

CGT is a tax charged upon the sale or transfer of certain assets, such as the family home, land or shares, where that asset has increased in value.

Existing CGT Rules for Divorcing Couples

Transfers that take place between spouses during the tax year that they separate are not subject to an immediate CGT charge.

For example, if a couple cease living together in July 2021 then there would be no immediate charge payable on transfers of assets between that couple during the period up to 5 April 2022. The charge is deferred until the receiving spouse disposes of the asset.

Transfers that take place between spouses during the tax year following the year of separation are immediately chargeable to CGT.

For example, if a couple cease living together in March 2022, a charge would be payable on the transfer of assets between that couple from 6 April 2022 onwards.

Private Principal Residence (PPR) Relief

If a profit is made upon the sale of the family home, subject to meeting certain criteria, that profit is tax free.

If one spouse leaves the family home, that departing spouse may still be benefit from PPR relief if the property is transferred to the other spouse and certain conditions are met. This includes the other spouse remaining living in the family home and the departing spouse not electing for another property to be their main residence.

PPR relief does not apply for the departing spouse if the property is sold to a third person and the departing spouse left the family home for a period exceeding 9 months.

New CGT Rules

Transfers between spouses which take place at any time in accordance with a divorce agreement will not be subject to an immediate charge to CGT.

Transfers between spouses will not be subject to an immediate charge to CGT if they take place within three tax years following to the tax year of separation or at the date of divorce if earlier.

For example, if a couple separate in July 2023, there will no immediate charge for transfers made until 5 April 2027, or at the date of divorce if earlier.

A spouse who has vacated the family home will be given the option to claim PPR relief when it is sold.

How will the new CGT rules affect divorcing couples ?

• The new rules will apply to any transfers from 6 April 2023

• The changes will give divorcing couples more time to plan and transfer assets between themselves without incurring an immediate charge to CGT.

• The divorcing couple will have an unlimited time to transfer assets, if subject to a formal divorce agreement.

How can we help ?

In all cases, CGT should be considered at an early stage. If you are contemplating a divorce and would benefit from preliminary advice then please contact the family team at Samuel Phillips Law, in the strictest of confidence at familydepartment@samuelphillips.co.uk We may recommend you seek specialist advice from a Tax Specialist, depending upon your circumstances.

This article is for general information purposes only and does not constitute legal or professional advice. Please note the law may have changed since this article was published.

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