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July 22, 2022

Changes to Capital Gains Tax on Divorce and Dissolution

In recent months there have been many changes to the legal landscape involved in divorces and dissolutions, including the introduction of no-fault divorce in April 2022.

Divorce and dissolution can be exceedingly difficult for separating spouses and civil partners, especially as it can lead to an unexpected Capital Gains Tax (“CGT”) bill if the correct tax advice is not obtained during the proceedings. This could in turn reduce the assets available for distribution between the parties.

However, new Government draft legislation may mitigate the CGT payable during the divorce and dissolution proceedings. The draft legislation can be found here. These proposals are expected to apply to disposals on or after 06 April 2023.

Please see our previous blog which briefly discusses CGT in the tax year of separation.

The changes to the current legislation will include:

  • Separating spouses or civil partners will be given up to three years after the year they cease to ‘live together’ for the no gain/no loss principle to apply (rather than the current rules of up to the end of the tax year of separation).
  • No gain/no loss principle will 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 will be given the option to claim the CGT relief Private Residence Relief when sold.
  • Individuals who have transferred their interest in the home to their ex-spouse/civil partner and who are entitled to receive some proceeds on the sale, 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.

This increased window will allowing separating spouses and civil partners to benefit from the transfer of assets under the no gain/no loss principle, whilst potentially mitigating their respective CGT liability.

If you or one of your clients require tax advice on divorce/dissolution, please contact a member of our team.

Disclaimer: This article is for general information only and is not intended to constitute individual advice. It is recommended that you seek independent tax advice during the divorce or dissolution proceedings to understand your tax position. 

Related Articles 

Break It Up: Tax on Separation and Divorce

Private Residence Relief: Marriage and Divorce

Contact us today to discuss your tax requirements.
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