New proposed legislation regarding Capital Gains Tax on Divorce and Separation

Currently, “no gain no loss” treatment on disposals is only available in the remainder of the tax year of separation which can be costly.

The new measure will give separating couples up to three years in which to make no gain or no loss transfers of assets between themselves when they cease to live together; and unlimited time if the assets are the subject of a formal divorce agreement.

It will also introduce some special rules for individuals who have maintained a financial interest in their former family home following separation and rules that apply when that home is eventually sold.

The new measure is intended to make the CGT rules for separating couples fairer since it allows more time for couples to transfer assets between themselves without incurring CGT charges.

The proposed revisions are as follows:

• separating spouses or civil partners 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 time limit for no gain or no loss treatment applicable to assets that separating spouses or civil partners transfer between themselves as part of a formal divorce agreement
• a spouse or civil partner will be given the option to claim Private Residence Relief (PRR) when the former matrimonial home is sold if they retain an interest
• individuals who have transferred their interest in the former matrimonial home to their ex-spouse or civil partner under a Mesher order where they are entitled to receive a percentage of the proceeds when that home is eventually sold, will be able to apply the same tax no gain no loss treatment to those proceeds as individuals transferring their interest immediately on separation.

The new legislation will be fairer for those spouses who are separating or divorcing and are in process of distributing assets between themselves.

Three years for separating couples and no time limit for divorcing couples to make no gain or no loss transfers between themselves is likely to benefit individuals, especially those involved in more complex settlements, as it will give them more time to work out their agreement.

The changes will also mean that the couples’ wealth is not reduced by tax payments.