Tax implications for divorcing couples

On the 22^nd of July 2022 the Government produced draft legislation which will change the capital gains tax (CGT) position for couples that are divorcing. Currently the proposed legislation is still in draft form and can still be amended, although the date of the release of the legislation is 6^th April 2023 and it is not expected to have any drastic changes made to it.

What is the current law on capital gains tax for divorcing couples?

Right now, the law states that married couples have until the end of the tax year in which they separate to transfer assets between themselves so as to avoid any immediate tax payable on the transfer of those assets. Thus, each party would get ownership of those assets at the original base cost. When the tax year is over, any transfer of assets is then done at market value.

What are the changes to the law?

The draft legislation provides for this time limit to be extended to the whole period taken to transfer the assets as long as the couples are transferring assets in accordance with a Court order. This will also allow those that aren’t occupying the family home to benefit from Principal Private Residence (PPR) relief on sale/transfer as well as providing relief for those who enter into a deferred charge arrangement over the main home. Although it is worth noting that these changes won’t impact any assets that are sold as part of proceedings.

These are welcome changes and will allow couples who are going through the divorce process to transfer assets to one and other without the extra burden of an immediate CGT liability. This change in the law is also a stark reminder to clients to make sure they secure tax advice as well as legal advice when going through the divorce process.

Our team of family law experts work closely with a number of accountants to ensure we are providing our clients with a comprehensive service and thorough professional advice. If you need any help in this area, our family law team are here to help – just get in touch.