Capital Gains Tax for divorcing and separating couples – what we can expect in 2023

Divorce or separation is an incredibly stressful and overwhelming process that may initially seem daunting. When other factors, such as finances and properties are involved, it can get extremely complicated, thus elongating the process further. One of the biggest concerns between separating or divorcing couples is the transfer of assets and the tax applied to them. In this article, we will introduce you to some key points to consider when transferring assets during and after divorce or separation and we will also highlight the newly announced changes in the Capital Gains Tax applied to those assets. This article is not intended to confer specific tax advice and no liability can be accepted for its content. Should you require Capital Gains Tax advice in relation to your particular circumstances, you should speak with your Accountant or other tax specialist.

Transferring assets and how it works

During your divorce/separation, you and your ex-partner are responsible for deciding whether to sell your former matrimonial home and split the proceeds or transfer the equity so that only one remains the owner. 

When couples opt to transfer property ownership, they go through the Equity Transfer process. This is a legal process required to add or remove a person from the title deeds of a property, giving or revoking their ownership of it.

Current Capital Gains Tax Law

When it comes to couples undergoing divorce or separation, Capital Gains Tax refers to the tax applied on assets transferred after their separation or divorce. These assets can include shares, personal belongings, and property. 

While the transfer of assets is highly recommended before the divorce/separation is finalised, we understand this is only possible in some cases.

Under current law, ex-partners can apply a rule “no gain, no loss” rule to assets transferred within the financial year in which the divorce or separation is finalised, meaning that any gains or losses are only dealt with once the receiving partner disposes of the asset. Disposing of an asset can include:

• Selling it
• Giving it away as a gift
• Swapping it for another asset or getting compensation if it has been lost or destroyed.

Once the financial year is over, all transfers are taxed the same way as normal disposals for capital gains tax purposes. To find out how Capital Gains Tax is calculated, please visit the Government’s resource page.

Announced changes to Capital Gains Tax

With the hopes of creating a fairer divorce and separation process, the Government recently announced changes in the tax charges applying to asset transfers.

Starting in the new financial year (April 2023), separating and divorcing couples will no longer feel the pressure of settling assets within the same tax year, as they will now be given up to three years after they agree on their divorce/separation to make their “no gain no loss” transfers. This will also apply to assets transferred as part of their formal agreement, no matter the date they are disposed of.

Along with this, the said changes will allow the spouse or civil partner who retains the interest in the formal matrimonial home to claim Private Residence Relief (PRR) when that property Is eventually sold. Meanwhile, individuals who have transferred their interests in the said matrimonial home to their ex-partner are entitled to receive a percentage of the gains when the property is disposed of, applying the same tax rule to their proceeds that applied when they transferred their interest originally.

Our expert team at Eric Robinson Solicitors are prepared to act for you, dealing with any financial or property issue that arises in your divorce or separation. With many years of experience, our solicitors will be able to advise you on your options and provide support and complete attention to ensure that your divorce/separation process is as smooth and pleasant as possible  For more information surrounding your financial arrangements on divorce, get in touch with the Eric Robinson team today. Call us on 02380 218000.