New rules set to come into force in April 2023 will mean couples who are divorcing or separating will have three years to distribute assets between themselves – for example, property – without incurring tax liabilities.
What is the current law on transferring property and other assets?
Under current legislation – the Taxation of Chargeable Gains Act 1992 – spouses or civil partners can transfer assets between themselves on a ‘no gain or no loss’ basis for the remainder of the tax year in which they first separated. ‘No gain or no loss’ means that the transfer does not incur any capital gains tax, even though the recipient has technically gained an asset.
Capital gains tax will only be incurred if and when the recipient spouse sells on the assets at a later date. The sale will then be taxed according to its value at the time it was acquired by the spouse who originally held it, before the transferral of ownership.
Then, from the beginning of the following tax year, any transfers of ownership between separating couples begin to incur capital gains tax in the usual way.
What is the new law on assets transfers?
From April 2023, the ‘no gain or no loss’ period will be extended to three years after separation – unless the assets were transferred during formal divorce proceedings, in which case the grace period will continue indefinitely.
In addition, estranged or divorced spouses who retain an interest in the former family home will be able to claim private residence tax relief when it is eventually sold on.
These changes are set to introduced via amendments to the Finance Bill 2022-23.
According to HM Revenue and Customs, the changes will make the divorce and civil partnership dissolution process fairer for couples, especially those working out more complex financial settlements. The extended grace period will allow such couples to focus on reaching an ideal settlement and less on minimising tax liabilities and financial loss.
Major Family Law can provide expert guidance on the financial complexities of divorce and help you ensure your best interests are fully protected. Get in touch today.