Detailed proposals from HMRC are extending the period of time available in which separating couples can make no gain or no loss transfers between themselves for capital gains tax purposes.
HMRC said its aim is “to make fairer the process for those spouses who are separating or divorcing and are in process of distributing assets between themselves”.
Under the new proposals, which follow a recommendation from the Office for Tax Simplication in May 2021, couples will have at least three years to make the transfers, whereas existing rules require them to make the transfer in the current financial year.
HMRC said the proposals would “especially benefit those parties involved in more complex proceedings, as it means that more time can be spent on the divorce considerations, rather than Capital Gains Tax considerations.
“The extension will also help avoid further depletion of household income or existing accumulated household wealth through dry tax charges for those who meet the new time period.
“There will be similar benefits for those individuals who are transferring assets between themselves that are listed in a divorce or separation agreement.”
The legislative revisions are planned to be introduced in Finance Bill 2022-23 and will apply to disposals that occur on or after 6 April 2023.
Commenting, Laura Suter, head of personal finance at AJ Bell, said the change would be “a big relief for couples who are divorcing and have assets and investments they need to transfer between them.
“The current rules mean that you only have the remainder of the tax year in which you get divorced to make transfers of investments or assets without it being considered for CGT purposes.
“It means that before now there has been a bizarre case where it’s more beneficial to get divorced in the new tax year in April, as it gives you more time to sort your financial.
“Likewise if you were ‘unlucky’ enough to get divorced in late March you’d face a dash to get your financial affairs in line before the April 5th deadline. Clearly basing your divorce around the tax year system isn’t practical, so this fix will avoid a lot of hassle and stress.
“Now couples will be given three years from when they divorce to make these transfers, saving on potentially large tax bills if they didn’t transfer assets in time and giving more breathing space.”
