Date posted: 21st Jun 2022
Sadly, marriages and civil partnership do end.
Understandably, when a married couple or civil partners separate, tax planning may not be at the top of their list of thoughts.
Even in the most simple of cases, involving the transfer of the family home into a sole name, there can be tax issues.
It should be noted that where one spouse or civil partner leaves the matrimonial home, they may continue to be eligible for private residence relief even if they no longer live in the property. But there are specific conditions that need to be satisfied for this to apply and it can impact the PRR on any new home acquired.
Further considering that married couple invariably have investments, either jointly or solely such as rental properties, share portfolios and even businesses, there are many tax and commercial considerations to resolve.
The HMRC rules are sympathetic to a point as a ‘no gain/no loss’ rule allows capital assets to be transferred between spouses free of capital gains tax (CGT) up to the end of the tax year in which they permanently separate.
However, beyond that date, asset transfers between the couple will often give rise to a CGT liability. With many divorce settlements taking several months this is worth careful consideration.
The actual date that assets are treated as transferred between the separating couple depends upon how the marriage or civil partnership is dissolved.
The Office of Tax Simplification has recommended to the Treasury that the no gain/no loss rule should be extended to two years from the date of permanent separation. The government have accepted this recommendation, but the change in rules is yet to be legislated.
All in all, CGT on separation is a complex area and please do talk to us if any issues may be in point. We understand the sensitivity of the situation and are here to help.