For separating or divorcing spouses, HM Revenue & Customs (HMRC) has announced important changes to Capital Gains Tax rules relating to transfer of assets.
Currently, assets transferred between cohabiting spouses and civil partners are subject to “no gain or no loss” treatment. The treatment applies in any tax year in which they are living together. This treatment postpones gains or losses until the spouse or civil partner in receipt of the asset disposes of it.
The cost of acquisition is deemed to be the same as when the transferrer originally purchased the asset.
Where a marriage or civil partnership has broken down, the benefit of no gain no, no loss treatment only lasts until the end of the tax year in which the two parties permanently part ways.
In a review of CGT, the Office of Tax Simplification (OTS) recommended fairer treatment of divorcing or separating couples disposing of transferred assets.
Extension of ‘no gain, no loss’ treatment
No gain, no loss treatment will be extended for disposals occurring on or after 6 April 2023. The extension will allow for the transfer of assets for up to three years after the couple stop living together.
In particular, those experiencing protracted and complex divorce proceedings, involving the distribution of assets, stand to benefit.
The Finance Bill 2022-23 also includes the following proposed revisions:
- Assets involved in a divorce agreement will be subject to no gain, no loss treatment for an unlimited time,
- a spouse/civil partner retaining an interest in the former matrimonial home can claim Private Residence Relief (PRR) when the home is sold; and,
- where interest in the former matrimonial home is transferred to the ex-spouse or civil partner, and the transferrer is entitled to receive a percentage of the proceeds when that home is sold, the same tax treatment that applied on transfer will apply to the proceeds of the sale.
Example
The latest announcement stands to benefit those separating couples making disposals on or after 6 April 2023. However, for those separating in January 2023 the no gain, no loss treatment will end 5 April 2023.
How can George Hay help?
Capital Gains Tax often involves sizeable sums of money; undertaking careful tax planning can help you to minimise your liabilities. However, tax planning requires an understanding of current tax policy and how it applies to your circumstances. We can explain existing legislation, and help you understand the impact of any disposal of assets on your liabilities.
To discuss your circumstances in more detail, with our tax advisers in Cambs, Beds or Herts, contact us today.
Link: Capital Gains Tax: Separation and divorce
