Capital Gains Tax In Regards To Divorce – Updates For 2023

Capital Gains Tax (CGT) may not be an obvious concern for spouses and civil partners going through a divorce.  As is often the case, ignorance of tax rules can lead to costly consequences.

With changes introduced in the 2023 Finance Act affecting divorcing parties, now would seem an opportune time to review the CGT framework following a separation and divorce.

The relevant Tax legislation dealing with the transfer of assets between an individual living with their spouse or civil partner is found in section 58 of the Taxation of Chargeable Gains Act 1992. 

Prior to the changes introduced by the 2023 Finance Act, Section 58 provided that transfers of assets between spouses and civil partners who were living together were made on a “no gain or no loss” basis in any tax year in which they were living together. This means that any gains or losses from the transfer were deferred until the assets were disposed of by the receiving spouse or civil partner, who was treated as having acquired the asset at the same original cost as the transferring spouse or civil partner.

In cases where spouses or civil partners separated, the no gain or no loss treatment was only available in relation to any disposals in the remainder of the tax year in which the separation happened. After that, transfers were treated as normal disposals for capital gains tax purposes. 

With an average divorce taking up to 8 months to finalise and many taking considerably longer, delayed decisions on splitting assets between divorcing parties could often involve unwelcome CGT liabilities to fund.  With effect from April 2023 changes have been introduced into legislation under Section 41 Finance (No2) Act 2023:

• separating spouses or civil partners will have up to three years after the year they cease to live together in which to make no gain or no loss transfers.
• no gain or no loss treatment will also apply to assets that separating spouses or civil partners transfer between themselves as part of a formal divorce agreement.  So even in the case of a protracted divorce lasting several years, CGT need not be a concern as was previously the case.
• a spouse or civil partner who retains an interest in the former matrimonial home has the option to claim Private Residence Relief (PRR) when it is sold.  
• individuals who have transferred their interest in the former matrimonial home to their ex-spouse or civil partner and are entitled to receive a percentage of the proceeds when that home is eventually sold are able to apply the same tax treatment to those proceeds when received that applied when they transferred their original interest in the home to their ex-spouse or civil partner.

The changes introduced from April 2023 represent a sensible solution to what was unhelpful legislation affecting couples at an already difficult time in their lives.

As an accountancy practice with many landlord clients’ property assets will be a significant aspect for any clients unfortunate enough to be experiencing a divorce.  If any readers need any help understanding how the changes may affect them, please contact us on 01902 711370 or email enquiries@uklandlordtax.co.uk

If you enjoyed this article you should read about how landlords should handle stamp duty on transfer of property or about UK inheritance tax for non-residents next.

Thandi Nicholls Ltd
Creative Industries Centre
Glaisher Drive
Wolverhampton
West Midlands
WV10 9TG