CGT changes since 6 April 2023

Capital Gain Tax (CGT) is the tax payable on any profit made upon disposal/transfer of an asset. This has always been a consideration for practitioners when couples are separating or divorcing as in many cases the family home needs to be sold or transferred from the parties joint names to one parties sole name.

Previous CGT rules

The previous Capital Gains Tax rules provided that separating couples had until the end of the tax year in which they separated to transfer assets between them on a no gain / no loss basis. Given the uncertainty of the arrangements for separating and most importantly how the couple would be dividing the finances of a divorce if the separation occurred nearer to the end of the tax year couple often felt pressured into make hasty decisions to avoid unnecessary tax.

Current CGT rules

The new CGT rules introduced since 6 April 2023 have been welcomed. The new rules are as follows:

• Separating couples are now being given three years in which to transfer assets on a no gain / no loss basis following the tax year of separation. Separating couples are going to positively benefit from this extension of time as it allows them to make less hurried decisions.

• If the transfer between separating couples is made pursuant to an agreement or order then the relief still applies despite how many years have passed since separation.

• In respect of principle private residence relief (PPR) i.e. your name home the rules now allow sale of a spouse’s interest to a third party. This will allow a parent or new partner to effectively “buy out” one of the separating parties interest in the property. Previously this relief could only be claimed if the interest was transferred to a spouse in occupation of the family home.

• For separating couples transferring their interest in the family home upon a deferred sale i.e. in many years’ time and usually under the terms of an Order, the proceeds received are also on a no gain / no loss basis.

Overall, the new CGT rules are much fairer and will help separating couples. Simply put, the tax bill will be less. The only downside potentially is that the short time period previously allowed, whilst applying potentially unnecessary pressure, did mean parties remained focused on financial settlement.