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With new capital gains tax rules coming into force, Raphaela Kohs examines what these changes mean for separating couples.

The new capital gains tax (CGT) rules have come into force today. They are a welcome step in providing a forward in assisting separating couples to part ways in a tax-efficient manner. Please note that this article applies only to married couples who are divorcing. The position is different for couples who cohabit.

What is CGT?

Under the old rules, transfer of assets could be made without having to pay capital gains tax – this was known as the “no gain, no loss” relief.

This meant that within the same tax year of a couple’s separation, a transfer must be completed to utilise the relief. As financial remedy cases can take longer than one year to complete, this meant that transfers on property would be treated as a normal disposal under the CGT rules. Understandably, this can cause additional stress during an already stressful period in people’s lives. It also disproportionately affected those who separated later on in the tax year – for instance, if a couple separates in May 2022, they have until 5 April 2023 to complete transfers without incurring CGT. However, if they had separated in March 2021, they would only have had until 5 April 2022 to transfer assets.

However, couples who share the former matrimonial home (FMH) can claim principle private residence relief (PPR).

What has changed?

The changes are significant:

1. Separating couples now have three years following the tax year of separation in which to make any transfers.
2. The “no gain, no loss” relief is unlimited provided the transfer is subject to the terms of a Court Order including an order by consent (i.e. a financial order could be agreed in 2023 and if an asset is only transferred in 2030, this remains subject to the “no gain, no loss” relief).
3. Spouses who transfer their interest (e.g. under a Mesher Order) to their ex-spouse are entitled to receive a percentage of the proceeds when the property is sold, and are able to apply the same tax position to the proceeds as if they had transferred their interest at the date of the order.

This is a hugely positive change and will ensure that parties are not penalised for either delaying a sale for the benefit of the family or adding to the financial stress following a relationship breakdown.