A recent policy paper from HMRC seeks to introduce new rules on the tax consequences of separating spouses and civil partners. Under the current rules, separating couples can benefit from the “no gain no loss window” by transferring assets within the same financial year that they separate.
The measures to be implemented in the Finance Bill 2022-23 changes those rules to provide that individuals be given three years in which to make no gain no loss transfers between themselves when they cease to live together; and unlimited time if the assets are the subject of a formal divorce settlement. This is a welcome change as for many separating couples, tax liabilities are often the last thing they expect and can be a further complicating factor in trying to secure agreement before the end of the financial year. The change in policy perhaps reflects the need for individuals to take stock before rushing into agreements, and ties in with the new 20 week minimum cooling off period between the divorce application and conditional order.
The measures also allow a spouse or civil partner who retains an interest in the former matrimonial home to be given an option to claim Private Residence Relief when it is sold. Time and time again, people will often leave the family home to avoid conflict or simply to give the other person space; but what they don’t realise is that they will begin to incur a liability to Capital Gains Tax after nine months from the date that they leave the home. They will still benefit from Primary Residence Relief, but it will be reduced pro rata to include only their time spent in occupation plus nine months. Fine if you sell or transfer the home after a few months, but a real concern if you do so after a few years.
A summary of the policy can be found at https://www.gov.uk/government/publications/capital-gains-tax-transfers-of-assets-between-spouses-and-civil-partners-in-the-process-of-separating/capital-gains-tax-separation-and-divorce
For more information on transferring or selling assets after separation, please contact us on 0345 646 0406 or fill in our online enquiry form.