Transfer of assets on separation... Relaxing the rules?

27 July 2022

When a couple decide to separate, they’re likely to have a lot of issues to deal with and thinking about whether they’re being tax efficient isn’t likely to be uppermost in their minds! However, the tax laws haven’t been helpful to a separating couple who may consider transferring their joint assets later down the line after separation, and they can face an unexpected tax issue on the transfer.

what’s the current position?

The transfer of assets between spouses or civil partners is one of the few times that a disposal for Capital Gains Tax (CGT) can take place without there being a potential CGT liability arising.

When a couple decide to separate, that rule only continues to apply in the year of separation.

For a tax year that runs from 6th April to 5th April, making the decision to separate in late March rather than in late April, can have some tax implications that aren’t intended nor expected.

what are the Proposed changes?

For some time, representations have been made that the rules should be relaxed to give separating couples more time to decide on their financial arrangements.

The government have recently announced that for assets transferred from 6th April 2023, couples will have 3 years from the date of separation to make the transfer and this will still not be liable to CGT.

If the transfer is part of a formal divorce settlement, this period will be extended indefinitely.

What about the period from now until 6th April 2023?

Couples separating on or after 6th April 2023 will have more time to deal with their affairs, as we’ve seen above, assuming the proposed changes become law.

Couples who separate in 2022/23 will also be okay as they’ll be covered by either the nil gain, nil loss rules as currently in place in 2022/23, and then the extended period from 6th April 2023.

However, for couples who separated in 2021/22 and did not transfer their assets in that tax year, they’ll need to wait until 6th April 2023 to transfer their assets to take advantage of the new tax rules which may not be practical nor possible depending on their personal situation. This is sure to add further stresses at what will already be a very difficult time.

Transferring the main house

CGT relief is available when someone sells their main residence so that no CGT is payable on any increase in value. This is called Principal Private Residence relief (PPR).

A married couple can only have one main residence however, when they separate, it’s likely that one party will leave the main residence.

For any period that’s outside the year of separation, the spouse who leaves the property would no longer be able to benefit from PPR for the period after the move out of the property.

Under the proposed new rules, on receipt of proceeds from the sale of a house by one spouse after a transfer to the other spouse, the proceeds will be treated as if received when the property was still jointly owned as the main residence and no tax would be due.

How can we help?

CGT is a complex area and the complexity only increases at a time when a couple are going through separation and not giving much thought to the the tax rules.

We can help at this time, or at any life stage, when you may be considering asset transfers or disposals and want to be sure that the tax position does not give you a nasty, unexpected surprise.

Drop me an email or give our team a call any time on 01604 273782.