Capital Gains Tax and Divorce

There has been more good news from the treasury, this time for divorcing couples. For some time, there has been a stealth tax in practice for divorcing couples when disposing of their homes.  In a climate of rising house prices, the financial impact on those individuals has been significant, not always foreseeable and an unknown risk.

 

Present Law

Receiving the Property

Currently, if one spouse transfers ownership to the other, there is no gain or loss.  However, when that spouse comes to sell the house, they will pay CGT as if they had been the one to purchase the asset at its original value.  You can only avoid this if you transfer the ownership by the end of the financial year. After this date, you are liable for CGT.

Receiving a Charge over the Property

In addition, if there is a transfer between spouses with a delayed payment, called a ‘legal charge,’ the spouse with the benefit of the charge will be liable for CGT, if that charge has been reflected as a percentage of its future realisable value.  If it is a fixed sum charge, then it’s treated as a simple debt, and there is no CGT.

Changes

From 6 April 2023

  • Married couples will have up to 2 years after the tax year in which they separate to transfer property without incurring CGT;
  • This also applies to shares or business interests;
  • A spouse receiving a charge over the property will be able to apply for Private Residence Relief (PRF) when it is sold;

This means there is no dash to finalise complex divorce settlements to take advantage of these exclusions.  Less stress for separating couples and a much-needed saving at a time when both parties are feeling the pinch.  Those that seek to preserve a home for their children’s use during their minority won’t be penalised later down the line for deferring the payment of monies owed to them.  A long time coming but well worth the wait!

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