Divorcing spouses benefiting substantially from new rules of capital gains tax

By Vanessa Lloyd Platt
Lloyd Platt & Co

Under new rules that have been introduced this year, a divorcing spouse can transfer assets to the other party (quite often the matrimonial home) on a no-gain, no-loss basis at any time, provided that the transfer is included within a formal divorce agreement such as a Court Consent Order. That is likely to cover the vast majority of divorce cases where the concession is relevant. In other cases, spouses are now given up to three years from the end of the tax year of separation to make what is known as “no gain, no loss transfers” to the other spouse.

Secondly, there are now more generous Capital Gains Tax UK Changes payable by spouses following the sale of the former matrimonial home. Whilst the rules are quite complex, they will nevertheless ensure that many spouses who previously would have had to pay CGT on the sale of the family home, will no longer have to. The rules previously had become so onerous that some parties found themselves having to pay the CGT within nine months of separation. This led to all sorts of pressure being placed on divorcing couples.

Previously, and prior to the new rules coming into effect, the no-gain, no-loss treatment only applied if the transfer was made during a tax year in which the parties were or had been living together. This often resulted in transfers having to be made before 5 April in the year in which the parties separated. Again, this led to many divorce lawyers having to rush through financial settlements in order to have Consent Orders approved to enable the parties to make the transfer before the relevant date.

Finally, more interspousal transfers will be assessed on a no-gain, no-loss basis i.e. any gains or losses from the transfer will be deferred until the asset is later disposed of. This means in cases where the asset is not disposed of for many years or never at all, this will dramatically reduce the level of CGT payable at the time of the parties’ divorce.

Lawyers everywhere are celebrating the introduction of these rules which have alleviated much of the tax pressure on divorcing couples which produced many unfair results and had the effect of dramatically reducing the parties’ assets at a time when these needed to be maximised.

If you are in any doubt as to whether there will be any CGT payable arising out of your divorce, that not only applies to the matrimonial home as discussed here but to investment properties that you may co-own or other assets that need to be transferred as part of the divorce, please speak to your lawyer or accountant so that the correct information can be provided to ensure that there are no nasty surprises during the course of your divorce.

If you want to discuss any aspect of divorce and separation, please fill in our form below, call us on 0208 343 2998 or click to contact our divorce lawyers in London.

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