For capital gains tax (CGT) purposes, transfers between spouses and civil partners who are “living together” take place at no gain/no loss, so that no CGT liability arises and the recipient of the gift inherits the base cost of the person making the gift. Therefore, any gain or loss from the transfer is deferred until the asset is eventually sold.
Rules prior to 6 April 2023
Prior to 6 April 2023, the no gain/no loss treatment applied only until the end of the tax year in which a married couple/civil partners permanently separated. For instance, if a couple separated in January 2023, they had until 5 April 2023 to transfer assets in order to benefit from no gain/no loss treatment, leading to very tight deadlines and stress, during an already challenging time.
Changes from 6 April 2023
The Finance (No 2) Act 2023 extends the no gain/no loss treatment for transfers from 6 April 2023.
- No Time Limit for Asset Transfers: Divorcing couples are no longer confined to tight time frames for asset transfers, provided the transfers are made as a part of a formal divorce agreement.
- Extended Window of 3 years: Divorcing couples now have up to three years from the end of the tax year of separation to execute no gain/no loss transfers, if the transfers are not made as a part of a formal divorce agreement.
- Private Residence Relief (PRR) on matrimonial home: A spouse or civil partner retaining an interest in the matrimonial home may claim private residence relief upon its sale, provided they do not claim PRR on any other property for that same period. Where the leaving spouse or civil partner transferred their interest to their ex-spouse or civil partner but retained the right to receive a percentage of the proceeds when the home is sold, they are able to apply the same tax treatment to those proceeds when they are received, i.e. the deferred proceeds will qualify for PRR.
These new rules aim to alleviate stress and allow couples to focus on other crucial aspects during their divorce. Divorcing couples may wish to take advice to limit their CGT exposure on transferring their matrimonial assets, thereby reducing the likelihood of unexpected substantial CGT bills.
If you have any queries on any of the above points and would like assistance, please contact Sandy Gaywood on 01633 653150 or firstname.lastname@example.org.
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