Divorcing couples given tax leeway by Office of Tax Simplification

Divorcing couples will now have three years to pass assets to each other on a no gain/no loss basis, instead of the end of the tax year of separation, says Suzanne Briggs, Partner at Blick Rothenberg.

“This recommendation from the Office of Tax Simplification, which has been confirmed by HM Revenue & Customs (HMRC), is a huge step forward and allows people more time to sort out their affairs during a difficult time and at less cost.

“Currently, assets can be passed between spouses and civil partners on a no gain/no loss basis only up to end of the tax year of separation. So, for example, if a couple separate on 5 January 2022, they can only transfer assets between them with no tax liability arising until 5 April 2022. Subsequently, the no gain/no loss principle does not apply. Assets are deemed to pass between them at their market value which can result in Capital Gains Tax (CGT) liabilities and add an additional layer of cost and stress for separating couples.

“The new legislation will come into effect from 6 April 2023. It will give divorcing couples three years from the tax year of separation to transfer assets between them on a no gain/no loss basis, and unlimited time if the assets are the subject of a formal divorce agreement. In addition, main residence relief will be extended so that spouses who retain an interest in the former matrimonial home will remain entitled to the relief as if they had not moved out. This will also extend to deferred charge arrangements, whereby one spouse is entitled to a share of the sale proceeds when the home is eventually sold.

“The changes are very welcome and have been a long time coming. The CGT consequences that can arise out of the division of assets in a divorce are unfair and can add undue pressure and cost to a couple who are trying to agree a clean break. It makes complete sense for divorcing couples to be given a longer period of time to organise their affairs without having to worry about an immediate tax cost.

“As the proposals will not come into effect until 6 April 2023, couples who separated in the current tax year should benefit from no gain/no loss transfers in 2021/22 under the existing provisions. Couples who separated prior to 6 April 2022 will only benefit if they do not transfer assets between them until after 6 April 2023. It should also be remembered that couples who are not married, or are in a civil partnership, will not benefit from the no gain/no loss provisions. There remain inequalities in the legislation, but the changes are welcomed.”

Would you like to know more?

If you would like further information on this topic including how we can help you prepare for these changes, please contact Suzanne Briggs using the form on this page.