Capital Gains Tax (CGT) is a tax which is paid on the profit when you sell or dispose of an asset which has increased in value, writes the team at Morgan LaRoche.
This has always been an important consideration for family law solicitors when advising upon a financial settlement in divorce or dissolution of a civil partnership as there is often an agreement between parties to transfer assets such as the family home into one of the parties’ sole names.
Under the old rules, spouses and civil partners could only transfer assets on a ‘no gain or no loss’ basis provided such transfers took place during the financial year of separation/divorce i.e. up until 5 April following separation. After this, any transfers were deemed to have taken place at market value and so CGT was payable.
This timeframe was usually insufficient to enable separating couples to make use of the benefit, especially couples who separated early in the calendar year and so only had a few short months to complete any asset transfers.
Under new rules introduced since 6 April 2023, spouses and civil partners no longer need to transfer all capital assets in the tax year of separation. Couples can now transfer assets between themselves up to three years after they stop living together. Furthermore, if a disposal is made in accordance with a court order, CGT will not be payable even if it is more than three years after.
These changes will no doubt be welcomed by separating couples as it will remove the time pressure in an already stressful situation, especially in complex divorce proceedings.
Whilst these changes are welcomed, separating couples should still seek specialist advice as the circumstances for each couple will be unique. We would strongly suggest obtaining professional advice as early as possible.
If you would like to receive further information in relation to any of the issues discussed in this article or if you are contemplating divorce and would like some preliminary advice on the steps involved and possible implications, please contact Morgan LaRoche's Cassie Greville on 01970 343330 or via email at [email protected]