The Capital Gains Tax changes that could benefit divorcing couples

The date allows nearly a whole 12 months for divorcing couples or civil partners to agree, divide and move assets between themselves without being liable for Capital Gains Tax (CGT).

That’s because the tax system gives divorcing couples or civil partners until the end of the tax year in which they separate to move assets between each other without having to pay CGT. This means that couples who separate in March only have a matter of weeks or even days to agree and move their assets.

For most people going through a divorce, tax planning isn’t top of the list with more urgent matters of who is going to live where and what’s best for the children coming before anything else. It can often add a looming time pressure, and for many a nasty twist, at what can be a time of significant emotional upheaval. Often, couples are not able to transfer assets in the set timeframe, and there is a tax charge on transfers made subsequently.

New Capital Gains Tax rules for divorcing couples

The Government is now planning to introduce new legislation on chargeable gains that give people more time to organise their affairs without being liable for tax charges.

The change follows recommendations from the Office of Tax Simplification in their 2021 report on CGT where they noted that “it is unrealistic to expect separating couples to have resolved their affairs by the end of the tax year of their separation“ and helps align the tax system with the realities of modern-day life.

While the new legislation is still in draft, if all goes ahead as expected divorcing couples and civil partners will have up to three years following separation, or an unlimited period where transfers are subject to a formal divorce agreement, to transfer assets such as property, shares, or businesses between themselves in what is known as the ‘no gain, no loss’ window.

It’s expected this will be introduced in the Finance Bill 2022-23 and come into effect from 6 April 2023.

Thousands of divorcees will benefit

The impact can’t be underestimated. In 2020, there were 103,592[i] divorces granted in England and Wales which means hundreds of thousands of people are likely to feel the benefit of this change from next year.

Once people have decided to divorce, no matter how amicable it is, agreements need to be made on many aspects of daily life, including finances.

The proposed changes will benefit those involved in complex divorces, as it will allow for more time to be spent on the divorce considerations, rather than trying to beat the capital gains tax window.

This is a particularly positive move and one that shows a commitment from the government to create a more common-sense tax system.

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If you are currently thinking about, or going through a divorce and would like support with managing your finances, please do not hesitate to get in touch.

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[i] https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/divorce/bulletins/divorcesinenglandandwales/2020