For Capital Gains Tax (CGT) purposes, transfers between spouses who are “living together” take place at no gain/no loss, so that no CGT liability arises and the transferees inherits the transferor’s base cost. Any gains or losses from the transfer are deferred until the asset is sold and will then be subject to CGT.
Rules prior to 6 April 2023
Prior to 6 April 2023, the no gain/no loss treatment applied only until the end of the tax year in which the couple permanently separated. For instance, if a couple separated in January 2023, they had until 5 April 2023 to transfer assets in order to benefit the no gain/no loss relief, leading to very tight deadlines and personal stress during an already challenging time.
Changes from 6 April 2023
The Finance (no 2) Act 2023 extends the no gain/no loss treatment for transfers between spouses from 6 April 2023.
No Time Limit for Asset Transfers: Divorcing couples are no longer confined to tight time frames for asset transfers, provided the transfers are made as a part of a formal divorce agreement.
Extended Window of 3 years: Couples now have up to 3 years from the end of the tax year of separation to execute no gain/no loss transfers, if the transfers are not made as a part of a formal divorce agreement.
Private Residence Relief (PRR) on matrimonial home: A spouse or civil partner retaining an interest in the matrimonial home may claim private residence relief upon its sale, provided they do not claim PRR on any other property for that same period. Where the leaving spouse or civil partner transferred their interest to their ex-spouse or civil partner but retained the right to receive a percentage of the proceeds when the home is sold, they are able to apply the same tax treatment to those proceeds when they are received, i.e. the deferred proceeds will qualify for PRR.
These new rules aim to alleviate stress and allow couples to focus on other crucial aspects during their divorce. Divorcing couples may wish to take advice to limit their CGT exposure on transferring their matrimonial assets, reducing the likelihood of unexpected substantial CGT bills.
If you have any queries on any of the above points and would like assistance, please contact us now.