New measures are due to be introduced to the Capital Gains Tax (CGT) rules that apply to transfers of assets between spouses and civil partners who are in the process of separating.
The changes will apply to disposals of assets that occur on or after 6 April 2023.
The new legislation comes about after The Office of Tax Simplification (OTS) recommended that the Government should extend the ‘no gain or no loss’ window on separation and divorce. The measures will form part of the Finance Bill 2022-23.
What is a ‘no gain or no loss’ basis?
Married couples and civil partners are able to transfer chargeable assets, being assets such as properties, shares and business interests, between them without incurring CGT – this is known as the ‘no gain or no loss’ basis.
No gain or no loss means that any gains or losses from the transfer are deferred until the asset is disposed of by the receiving spouse or civil partner. The recipient of the asset will be treated as having acquired the asset at the same original cost as the transferring spouse or civil partner.
Under current legislation, when couples divorce or separate, this no gain or no loss treatment is only available in relation to any disposals in the remainder of the tax year in which the separation happens – any transfers made in the tax year after separation can result in CGT charges.
What are the new measures?
The new measures provide more time in which to make no gain or no loss transfers of assets between the separating parties.
Spouses and civil partners who are in the process of separating will be given:
– Up to three tax years after the tax year in which they cease to live together in which to make no gain or no loss transfers;
– Unlimited time if the assets are the subject of a formal divorce agreement;
– The option to claim Private Residence Relief (PRR) when the former matrimonial home is sold, if they have maintained a financial interest in it following separation; and
– The opportunity to apply the same tax treatment to the proceeds from the sale of the matrimonial home that applied when they transferred their original interest in the home to their ex-spouse or civil partner.
No gain or no loss treatment will also apply to assets that separating spouses or civil partners transfer between themselves as part of a formal divorce agreement.
These new provisions only apply to couples separating following the breakdown of a marriage or civil partnership. Couples who have not been married or entered into a civil partnership do not have the same no gain or no loss entitlements.
How M+A Partners can help
Our experienced Tax Team can help and support you with all aspects of Capital Gains Tax and are here to answer any queries you might have regarding the transfer of assets between spouses and civil partners who are in the process of separating.
Please get in touch with your usual M+A Partners contact or email enquiries@mapartners.co.uk
Capital Gains Tax, Separation & Divorce