Less stress on CGT deadlines for separation and divorce

Couples in the process of separating may find themselves facing a costly capital gains tax (CGT) bill if they miss the tight deadline for transferring assets as part of their divorce settlement. From 6 April 2023, separating couples will be given considerably more time.

Currently, the basic rule is that:

• Transfers only escape CGT (on a 'no gain, no loss' basis) if made by the end of the tax year in which the couple are no longer living together – the year of separation.
• After the end of the year of separation, but before divorce is final, any transfers of assets are treated as made at market value, so CGT can be payable.

The rules apply equally to couples dissolving a civil partnership.

Proposed changes
Under the new proposals, separating couples will be given up to three years after the end of the tax year when they cease to live together in which to make no gain or no loss transfers. However, earlier divorce, dissolution of a civil partnership or separation under a separation order will bring the no gain, no loss period to an end.

There will be no time limit for any assets transferred as part of a formal divorce agreement.

The changes will apply to disposals made on or after 6 April 2023, so couples separating during 2022/23 can also benefit.

Private residence relief
Additionally, some special rules will apply to individuals who maintain a financial interest in their former family home following separation:

• Where an individual maintains a financial interest in the family home, they will have the option to claim private residence relief when the home is subsequently sold to a third party.
• An individual who transfers their interest in the former family home to their ex-spouse or civil partner but is entitled to receive a proportion of the sale proceeds on eventual sale, will be able to apply the same tax treatment to those proceeds that applied when they transferred their original interest in the home.

The government’s policy paper explaining the change can be found here.

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