Capital Gains Tax Changes for Divorcing and Dissolution of Civil Partnership Couples

Divorce or Dissolution of a Civil Partnership will usually involve the transfer or sale of assets between the parties or to third parties to distribute the assets and raise funds. Capital Gains Tax (CGT) can be incurred on the sale or disposal of an asset where the sale or disposal price is higher than the purchase price. 

The Finance (No 2) Act 2023 received Royal Assent on 11 July 2023 which means that for disposals after 6 April 2023 spouses and civil partners have longer to resolve their finances without CGT immediately becoming payable or in some circumstances CGT will not be incurred if the requirements are met.  Section 41 of the Finance (No 2) Act 2023 introduced changes where:

Renters reform bill 2023
  1. Transfers between spouses or civil partners before the end of the Tax Year of permanent separation or in the subsequent 3 tax years, or if the transfer is pursuant to an order or agreement, even if after 3 years, will not incur a CGT liability on transfer however the receiving spouse will receive the asset at the value the transferring spouse or civil partner acquired the asset so there may be CGT payable on the future disposal of the asset. This is known as a ‘no gain, no loss’ transfer of assets.
  2. If a spouse or civil partner transfers their interest in the family home to the other party in consideration of receiving a percentage of the net proceeds on sale, or if they retain their interest but vacate the property to enable a deferred sale, they are able to apply the same tax treatment to their share of the sale proceeds when received as those at the time of the transfer or departure from the home, provided there is an order of the court.
  3. If a spouse or civil partner retains an interest in the family home they have an option, subject to conditions, to treat the period of no longer residing in the family home as if it had been their only or main residence until the time of disposal and then claim Private Residence Relief (PRR) when that interest is sold to a third party.
  4. If the non-occupying spouse or civil partner does not retain an interest in the family home, but retains a right to a share of the proceeds of sale of the family home, PPR relief could be claimed if:
    1. immediately before the non-occupying spouse or civil partner leaves the family home, the property is their only or main residence;
    2. the non-occupying spouse or civil partner disposes of their interest in the former family home to the spouse or civil partner that remains;
    3. the disposal of that interest to the spouse or civil partner who remains is in accordance with a formal divorce agreement or court order.
  1. If the non-occupying spouse or civil partner does retain an interest in the family home and subsequently disposes of that interest to a third party, different conditions apply:
    1. immediately before the non-occupying spouse or civil partner leaves the family home, it must be their only or main residence;
    2. the sale proceeds received by the non-occupying spouse or civil partner on the disposal of the family home must be received pursuant to a formal divorce agreement or court order;
    3. in the time between the non-occupying spouse or civil partner ceasing to live in the family home and the disposal of their interest in the family home to a third party:
      • the former family home must continue to be the main residence of the spouse or civil partner; and
      • the non-occupying spouse or civil partner must not have nominated another property as their main residence for the purpose of claiming PPR relief.

Impact on Cohabitees

Cohabitees, no matter the length of their relationship or time living together, who are not married or in a civil partnership will not benefit from any of the above provisions whether current or proposed.

Independent Legal and Tax Advice

Separating couples should always take legal and tax advice on financial matters relating to the breakdown of a marriage or civil partnership. The impact on those who have a dual tax residence need to take particular care with specialist advice. For example, a US citizen owning a UK property may be entitled to claim PPR on a transfer of the property between spouses or civil partners in the UK, however, the US tax authority does not recognise the same exemption and therefore a transfer may give rise to a CGT liability in the US.

In all cases, it is important that CGT is considered at an early stage and specific advice is obtained.

Please contact Lisa Broddle, Partner, Head of the Family Team, Solicitor, Family and Collaborative Lawyer and Accredited Family Mediator or Annie Tanielian, Family Lawyer and Solicitor or a member of the Family Law Team in Twickenham and Teddington, on 020 8891 6141 or email familyteam@srb.co.uk.