Is Capital gains Tax payable upon separation?

At the moment, separating couples have until the end of the tax year in which they separate to transfer assets including property other than the main residence without incurring CGT.

This means that tax on any gains resulting from the transfer are not payable until the asset is disposed of by the receiving spouse or civil partner, who will be then be treated for tax purposes as having acquired the asset at the same original cost as the transferring spouse or civil partner.

In practice, this means that a separating couple are under pressure to reach a quick settlement if they are to avoid CGT.  Quick settlements are just not always possible, especially when there is emotional upheaval to deal with.  There are many future considerations to be considered when separating – where to live; how to pay the bills; how to cope alone….

So, it is good news that from 6^th April 2023, separating spouses or civil partners are to be given up to three years after the year they separate in which to make ‘no gain or no loss’ transfers.   This is further extended to assets that separating spouses or civil partners transfer between themselves as part of a formal financial agreement ancillary to divorce.   I would always recommend a formal agreement in any event but even more so now.

In many cases, especially where there are children involved, the matrimonial home remains in joint names, or one party transfers his/her interest to the other upon the basis that they will receive a percentage of the sale proceeds once the house is sold – typically when the youngest child is 18.  

At the moment, potentially, CGT will be payable by the party who vacated the home but post-6^th April 2023, that party is also given an option to claim Private Residence Relief (PRR) when it is sold.  This applies whether the house remained in joint names, or one party transferred his/her interest to the other pending sale (and their share of the capital) at some later date – more good news.

To find out more or how we can help, please call our office on 01206 577676.