We have previously published articles explaining the tax implications of transferring assets between married couples and civil partners who are separated or divorcing.
Until now, the rules have been very restrictive in that the couple only had until the end of the tax year in which they separated to benefit from the rule which allows married couples to transfer assets or parts of assets between themselves without tax consequences. After that, the separated couple were treated as “connected persons” for tax purposes so that capital gains tax could arise on property and other assets which pass between them as part of the financial settlement.
Another unfortunate consequence of the current rules is that the “main residence” relief (sometimes called PPR relief) which generally allows individuals to sell their main home without capital gains tax consequences didn’t always apply to the whole of the gain attributable to a spouse who had moved out of the matrimonial home.
Fortunately, the rules are about to change and draft legislation is currently working its way through parliament which should make things far easier for couples in this situation.
Under the new legislation:
- separating spouses or civil partners will be given up to three years after the year they cease to live together in which to make no gain or no loss transfers
- no gain or no loss treatment will also apply to assets that separating spouses or civil partners transfer between themselves as part of a formal divorce agreement
Furthermore, PPR relief is to be extended to cover situations where one of the couple moves out of the family home but retains a financial interest therein until it is sold at a later date. The new provisions would allow:
- a spouse or civil partner who retains an interest in the former matrimonial home be given an option to claim PPR relief when it is sold
- individuals who have transferred their interest in the former matrimonial home to their ex-spouse or civil partner and are entitled to receive a percentage of the proceeds when that home is eventually sold, 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 proposed changes are expected to apply to disposals made on or after 6 April 2023. Note that the separation does not need to take place on or after 6 April 2023.
Therefore, advisers may wish to contact clients who may be affected as soon as possible to advise them of the change and the impact of delaying the transfer of chargeable assets and / or the family home until 6 April 2023 or later.