At present, separating spouses must transfer assets between themselves by 5 April in the tax year following the date of separation in order to claim exemption from capital gains. This has always been deemed too short a period for separating spouses to agree on a division of assets/settlement. Consider a couple separating on 31 March, they would have less than a week to move assets between themselves to avoid capital gains tax.
The good news is that draft legislation is in the works to change this with effect from 6 April 2023. From this date divorcing couples will no longer have to settle their estates within a year and face capital gain tax bills.
The proposed new measures will give separating spouses and civil partners up to three years after the year they cease to live together, to make no gain no loss transfers of assets. Unlimited time will be given when the assets are the subject of a formal divorce agreement.
Individuals who have transferred their interest in the former matrimonial home and are entitled to receive a proportion of the proceeds when the property is eventually sold, will be able to apply the same tax treatment to those proceeds as when they originally transferred their original interest in the home. Furthermore, individuals who have maintained a financial interest in their former home following separation should be given the option to claim private residence relief when the property is eventually sold.
At present there are no proposals to make the legislation retrospective for any couples separating in the run up to 6 April 2023.
Contact Adrian or Lorna for further details.