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Capital Gains Tax Divorce Rule Change JVCA

Capital Gains Tax and Divorce – Rule Change

The rules about capital gains tax and divorce are going to change – you will no longer need to settle your estates within a year, and face capital gains tax bills – instead it will be three years.

But … not until April 2023!   Which will be of little comfort to those couples who need to sort their property out before then.   

The change applies to the rules that govern transfers of assets between spouses and civil partners.  Currently, you have from the date you separate to the end of the tax year in which that date falls, to sort the financial aspect of your divorce without getting a capital gains tax bill:  ie, from date of separation to the following 5th April. After this period, any inter-spouse property transfer is taxed at the market value of the property transferred – which can lead to big tax bills. The change will make it 3 years from the tax year of separation, which will end up making a huge tax saving for many divorcing couples.

For those couples who are currently in the process of divorcing, you need to ask yourself: if it is worth waiting?  Do you want to delay the financial aspects of your divorce until after 6th April 2023 in order to take advantage of the new rules? Of course, the new rules aren’t yet law; in other words, there is a chance that the government won’t bring these new rules in for April 2023, but at some later date or potentially not at all.

More Details

1)      The proposed change is that separating spouses or civil partners be given up to three years, after the year they cease to live together, to make no gain or no loss transfers of assets.  Where there is a formal divorce agreement, this would increase to unlimited time.

2)      Some divorce settlements allow for the payment of a proportion of the sale of the former matrimonial home to the ex-spouse or civil partner.  Those individuals will be able to apply the same tax treatment to those sale proceeds when received, that applied when they transferred their original interest in the home to their ex-spouse or civil partner.

3)      There is also a proposal for special rules that would apply to individuals who have maintained a financial interest in their former family home following separation, and that would apply when that home is eventually sold.  This means that a spouse or civil partner who retains an interest in the former matrimonial home will be given an option to claim Private Residence Relief (PRR) when it is sold.

All of the above make the process of divorce fairer and less expensive for those divorcing couples who will end up distributing assets between themselves…meaning the difficult circumstances of many divorces will carry a bit less red tape and expense!

Divorcing or thinking about it?  Get some tax advice from our specialists – contact us now for a free initial consultation.

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