The government has published draft legislation which will give divorcing couples more time to transfer assets without incurring capital gains tax (CGT) charges.
From 6 April 2023, married couples and civil partners will be given up to three years to transfer assets such as property, shares or business interests between them under what is known as the ‘no gain, no loss’ window.
Rules have also been introduced which apply to individuals who have maintained a financial interest in their former family home following separation and that applies when the home is sold.
Currently, any gains or losses from the transfer are deferred until the asset is disposed of by the receiving spouse or civil partner, who will be treated as having acquired the asset at the same original cost as the transferring spouse or civil partner. When spouses or civil partners separate, no gain or no loss treatment is only available in relation to any disposals in the remainder of the tax year in which the separation happens. After that, transfers are treated as normal disposals for CGT purposes.
What are the changes?
The main proposed changes are as follows:
- separating spouses or civil partners will be given up to three years after the year they cease to live together in which to make no gain or no loss transfers;
- no gain or no loss treatment will also apply to assets that separating spouses or civil partners transfer between themselves as part 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 (PRR) 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, and can 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 measure is intended to make the process fairer for those spouses who are separating or divorcing and in the process of distributing assets between themselves.
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