The Spring Budget was delivered on 15th March 2023. Among a number of other measures, it was announced that the Spring Finance Bill 2023 will introduce legislation making changes to Capital Gains Tax (CGT) liability in relation to spouses and civil partners who are separating. We explore this further below.
Please note, we are unable to provide tax advice and specific advice should always be obtained from an accountant.
The current legislation dealing with these situations is section 58 of the Taxation of Chargeable Gains Act 1992.
The current rules provide that transfers of assets between spouses and civil partners who are living together are made on a “no gain or no loss” basis. This means that any gains or losses from the transfer are deferred or postponed until the asset is disposed of / transferred by the receiving spouse or civil partner.
The receiving spouse or partner will be treated as having obtained the asset at the same original cost as the transferring spouse or civil partner, rather than at the value it truly was when they received the asset.
Currently, once spouses or civil partners separate, the no gain or no loss treatment is only available for the remainder of the tax year in which the separation happens. After that period has passed, transfers are treated as normal disposals for CGT purposes.
The measure announced in the Spring Budget will apply where there is a transfer of assets between spouses or civil partners who are in the process of separating.
It proposes that separating spouses or civil partners be given:
· Up to 3 years, after the year they cease to live together, to make transfers of assets on a no gain / no loss basis
· Unlimited time to make transfers on a no gain / no loss basis when assets are the subject of a formal divorce agreement
There are also some special rules to be introduced that apply to individuals who have maintained a financial interest in their former family home following separation, which will apply when that home is eventually sold:
· A spouse or civil partner who retains an interest in the former family home is to be given an option to claim private residence relief (PRR) when it is sold.
· Individuals who have transferred their interest in the former family home to their ex-spouse or civil partner and are entitled to receive a percentage of the proceeds when that home is eventually sold, will 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.
The changes apply to disposals that occur on or after 6 April 2023.
Rationale for Change
The government has stated that the objective of the above measures is to make the CGT rules that apply to spouses and civil partners fairer when they are in the process of separating. It gives them more time to transfer assets between themselves without incurring the possible charge of CGT.
This will especially benefit parties involved in more complex proceedings as it allows more time to be spent on the intricacies of the separation and allows time for a fair, beneficial agreement to be reached, if possible.
If you are going through a separation and have concerns about CGT liability, it is vital that you obtain advice from an accountant as to your potential liability. We are unable to give tax advice, but are able to assist you in your divorce, separation and finances.
Please do get in touch with our team if you require our assistance in relation to your finances on separation.