When a couple is separating or is divorced it is unlikely that they are thinking about the tax implications of their actions. However, apart from the emotional stress, there are also tax issues that can have significant implications.
Capital Gains Tax implications on divorce
The Capital Gains Tax (CGT) rules that apply during separation and divorce changed for disposals that occur on or after 6 April 2023. These changes extended the period for separating spouses and civil partners to make "no gain/no loss transfers" up to three years after they cease living together. The changes also provide for an unlimited time if the assets are the subject of a formal divorce agreement. Prior to this change, the no gain/no loss treatment was only available in relation to disposals in the remainder of the tax year during which the separation occurs.
Does my divorce affect my past investments?
There are also special rules that apply to individuals who have maintained a financial interest in their former family home following separation and that apply when that home is eventually sold. This allows for private residence relief (PRR) to be claimed when a qualifying property is sold.
Is there capital gains tax on the sale of joint owned assets?
As well as transferring assets you will also need to consider the CGT implications when it comes to selling your family home. When it comes to selling your family home you will not be subject to capital gains tax as long as you meet certain criteria. If you have lived in the property for the entirety of its ownership your should not have to pay any capital gains tax, however if you moved out 9 months before the divorce is finalised or didn’t live here for the whole ownership (such as renting it out) a proportion of this gain might become liable to tax.
Making a financial agreement during a divorce
It is also important, during divorce proceedings, to make a financial agreement that is acceptable to both parties. If no agreement can be reached, then proceeding to court action to make a 'financial order' will usually be required.
Accordingly, the couple and their advisers should give proper thought to what will happen to the family home, any family businesses as well as the inheritance tax implications of separation and / or divorce.
Contact Us
If you are in the position of going through a divorce and are unsure how to tackle the Capital gains tax implications that arise with selling the family home and transferring assets between you partners please contact our tax team today. Our specialist tax team have a wealth of experience and can help you consider your assets and ensure that everything is in place for the divorce.