Draft legislation was published by the government on the 22 July 2022, giving divorcing couples an extended time frame within which to transfer and dispose assets without incurring capital gains tax (CGT) bills.
The current law only gives a short, constrained window of time for tax planning during divorce. Current tax law only gives divorcing couples until the end of the tax year in which they separate to transfer assets without incurring a CGT charge.
Expecting divorcing couples to organise their financial affairs and transfer/dispose assets within such a constrained time frame is unfair and adds to the already high levels of stress, anxiety and tension that they are experiencing.
The new tax laws are a sensible way forward and will be a kinder, more compassionate approach to meet the needs of divorcing couple who require a substantial period of grace to come to terms with the end of their marriage and to wrap their heads around how to sort out their finances fairly and in the most tax efficient way.
In a nutshell the new changes proposed are as follows:
1. Inter spousal transfers will be dealt with on a ‘No Gain No Loss’ (NGNL) basis up until the end of the third tax year after the tax year the couple separate/cease living together. As stated above, currently it is NGNL only up until the end of the tax year of their separation.
2. A disposal of an asset to a spouse under a divorce agreement or financial court order will be treated as NGNL.
3. When there is a transfer of the former matrimonial home to one spouse from joint names under a financial court order with an agreement that the transferring party will receive a proportion of the proceeds on an eventual sale of the home, the deferred charge/proceeds can be treated as a gain attributable to the situation at the initial transfer date but accruing later i.e., linking into the application of Principal Private Residence (PPR) relief.
This change in tax law will be a huge relief to couples facing family break up and to the professionals/organisations who support them in sorting out their finances, like Holistic Family Mediation.
For more detailed information on the new tax laws and changes coming into effect on 6 April 2023 for separating and divorcing couples, please click here.
*Breaking News* since publishing this post - Spring Budget 2023: Changes to Capital Gains Tax. In the Spring Budget (15 March), The Chancellor of the Exchequer announced and confirmed the above changes to the rules that apply to the transfers of assets between spouses and civil partners who are in the process of separating will come to effect as planned. It gives those dealing with separation and divorce more time to transfer assets between themselves without incurring a possible charge to Capital Gains Tax. For more details read the policy paper here.
If you are curious about how holistic family mediation can help support you and your family through separation and/or divorce, you may wish to consider our FAQs page and/or book in a Free Discovery Call via our services page.
If you are ready to get the ball rolling, please complete and submit a Self-Referral Form and book your initial separate Mediation Information & Assessment Meeting (MIAM) online.
We will then get in touch with your ex-partner (unless requested to hold-off at this stage) to encourage them to engage in the process highlighting the benefits of family mediation - low cost, staying in control and to have a quicker resolution compared to court based proceedings.