Divorce and separation always involves finances.
Under present legislation any transfer of assets between couples who are separating, or divorcing are free of any Capital Gains Tax (CGT) liability as long as the assets are transferred during the financial year of separation/divorce.
This can place undue pressure on couples to complete these transfers in time to qualify for the CGT exemption.
Lindsey Canning, head of Family Law at Wake Smith Solicitors, looks at proposed positive changes in the Finance Bill 2023 which, if approved, could apply to disposals occurring on, or after, 6 April 2023.
Based on recommendations from the Office for Tax Simplification, the Finance Bill 2022-23 aims to make the following changes:
- Separating spouses or civil partners would be given up to three years after the year they cease to live together to make no gain or no loss transfers.
- 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.
- A spouse or civil partner who retains an interest in the former matrimonial home will be given an option to claim Private Residence Relief (PRR) when it is sold.
- Individuals who have transferred their interest in the former matrimonial home to their ex-spouse or civil partner and are entitled to receive a percentage of the proceeds when that home is eventually sold, be able to apply the same tax treatment to those proceeds when received that applied when they transferred their original interest in the home to their ex-spouse or civil partner.
Lindsey said: “The present legislation does allow for transfers between couples, free of CGT, so long as they can complete the transfers in the same financial year of separation.
“For example this would mean if a couple separate in the May, they have 11 months left in which to transfer their assets, if a couple separate in the January, they only have 3 months left of the financial year in which to try and transfer their assets without incurring Capital Gains Tax.
“The current legislation has sometimes led to hurried settlements being reached and has also proved difficult for clients to predict what their likely CGT would be in the future, particularly if a property were to be sold and an accurate value for the sale price is not not known before the end of the tax year.
“The proposed legislative changes in the financial bill will correct a great deal of the problems which divorcing couples currently encounter. It will add for greater simplicity and also reduce the cost which the divorcing couple would have had to pay out to tax experts to advise as to likely CGT.”
For advice on divorce and finances contact Lindsey Canning at Wake Smith Solicitors on 0114 224 2081.
