As a follow up to our recent article on the tax treatment of assets transfer on divorce, we were pleased to see the government announcement yesterday which gives some welcomed news for divorcing couples from 6 April 2023 onwards.
Under the current rules, spouses and civil partners are able to transfer assets between them at ‘no gain no loss’ for capital gains tax purpose in the tax year of permanent separation. However, after this time the transfer of assets between themselves would be subject to capital gains tax with the deemed proceeds being the market value of the asset. Considering that divorce is usually a lengthy process, many found that they had capital gains tax to pay on top of everything else they are dealing with.
The government propose to provide some breathing space to divorcing couples by providing a much more favourable tax treatment as follows:
- They will have up to 3 tax years, after the year of separation, to transfer assets at no gain no loss;
- There is unlimited time when the assets are subject 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 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, will 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
This provides valuable time to organise the family’s financial affairs correctly without the pressure of having to make rash decisions just to avoid unwelcomed tax liabilities.
Fore more information: https://www.gov.uk/government/publications/capital-gains-tax-transfers-of-assets-between-spouses-and-civil-partners-in-the-process-of-separating
Kate Thorburn is Private Client Tax Manager and can help with your personal tax-related queries, please feel free to call 01242 776000 or email tax@randall-payne.co.uk.
