It’s rare we see the word tax and think it’ll be good news. However, there’s some good news for separating married couples and civil partners in the Spring Finance Bill 2023, which is currently passing through the committee stage in Parliament. Once passed this Bill lengthens the period of time separating couples have to transfer their capital assets without being liable for CGT.
The current system
The Bill, (formal name Finance (No 2) Bill (Session 2022-2023)) was published on 23 March 2023.When it’s passed it will fundamentally change how the transfer of capital assets between separating couples are dealt with for tax purposes.
Currently a transfer between a couple who are divorcing/ dissolving their civil partnership is exempt from CGT, on a no gain/no loss basis. This is as long as it takes place in the same tax year of the separation. So, if a couple separate in December, they have until 5th April the following year to transfer assets between them without a possible CGT charge. If the transfer takes place after the 5th April it could potentially be taxed.
This means there’s a very narrow window of time to complete a process of disclosure, negotiation, agreement, making the agreement legally binding and implementation. For a couple separating in May, you’ve an 11-month period to achieve this. For a couple separating in March, you’ve a matter of days.
The proposed changes and when it would apply
Recognising this, the Bill provides that couples are given up to three years to make no gain/no loss transfers of assets between them if they cease to live together. Where the assets are the subject of a formal divorce agreement it would be unlimited time..
It also plans to introduce rules for individuals who’ve maintained a financial interest in their former family home following separation which apply when the home is eventually sold. This would give them an option to claim private residence relief when it’s sold. In addition, individuals who’ve transferred their interest in the former matrimonial home to their ex-spouse/civil partner, and are entitled to a percentage of the proceeds when that house is eventually sold (by way of a charge), can 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. Meaning they wouldn’t pay CGT on the proceeds despite the sale being potentially years down the line.
These changes would apply to disposals that occur on or after 6 April 2023 and are very sensible. However, dates for the report stage and third readings are yet to be confirmed. Watch this space.