The government has set out changes to the rules that apply to transfers of assets between spouses and civil partners who are in the process of separating.
It provides that they be given up to three years in which to make no gain or no loss transfers of assets between themselves when they cease to live together; and unlimited time if the assets are the subject of a formal divorce agreement.
It also introduces some special rules that apply to individuals who have maintained a financial interest in their former family home following separation and that apply when that home is eventually sold.
The government says that the measure makes fairer the Capital Gains Tax rules that apply to spouses and civil partners who are in the process of separating. They also suggest that it gives them more time to transfer assets between themselves without incurring a possible charge to Capital Gains Tax.
Currently, the Capital Gains Tax legislation dealing with the transfer of assets between an individual living with their spouse or civil partner is found at section 58 of Taxation of Chargeable Gains Act 1992. This provides that transfers of assets between spouses and civil partners who are living together are made on a “no gain or no loss” basis in any tax year in which they are living together. This means that any gains or losses from the transfer are deferred until the asset is disposed of by the receiving spouse or civil partner, who will be treated as having acquired the asset at the same original cost as the transferring spouse or civil partner.
When spouses or civil partners separate, no gain or no loss treatment is only available in relation to any disposals in the remainder of the tax year in which the separation happens. After that, transfers are treated as normal disposals for capital gains tax purposes.
The new rules to be introduced are as follows:
- Separating spouses or civil partners be given up to three years after the year they cease to live together in which to make no gain or no loss transfers.
- No gain or no loss treatment will also apply to assets that separating spouses or civil partners transfer between themselves as part of a formal divorce agreement.
- A spouse or civil partner who retains an interest in the former matrimonial home be given an option to claim private residence relief (prr) when it is sold.
- Individuals who have transferred their interest in the former matrimonial home to their ex-spouse or civil partner and are entitled to receive a percentage of the proceeds when that home is eventually sold, be able to apply the same tax treatment to those proceeds when received that applied when they transferred their original interest in the home to their ex-spouse or civil partner.
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown, said:
“When you’re going through a divorce, there’s already enough stress and pressure to be getting on with. Couples don’t need the added trauma of being on the clock to split their finances before the end of the tax year. This welcome change will be a huge relief to anyone going through a more complex split – or a poorly timed one – giving them more time to come to an agreement.”
