HMRC released a Policy Paper back in July 2022 setting out welcome changes from 6 April 2023 to the CGT rules for married couples and civil partners who are in the process of separating.

The proposals set out an extended window in which the marital assets can be shared as part of their financial settlement without incurring a CGT charge. 

The legislation for the proposals was widely expected to be included in the 2023 Finance Act which received Royal Assent in January, but unfortunately there was no mention which leaves uncertainty for couples in the process of separation.  

Current position 

Currently, when a married couple or civil partners separate, they can transfer chargeable assets between themselves in the tax year of permanent separation on a no loss / no gain basis (i.e. the transferring spouse does not have to pay CGT on the transfer).  

Any transfers made in subsequent tax years, however, will be subject to the normal CGT rules, i.e. they will be made using the asset’s market value. There is the potential, therefore, for an unexpected tax liability for the transferring spouse. 

The marital home is often the most valuable asset that a couple share, and unless the property is sold within nine months of separation, or by way of a divorce settlement (which requires a claim for relief), the departing partner can be left with CGT liability when their share of the property is eventually sold. 

Changes proposed 

The changes proposed from 6 April 2023 would provide valuable time for the couple to organize their financial affairs in a tax efficient way, and these can be summarized as follows:  

• A window of up to three years from the year of permanent separation within which assets can be transferred between the couple on a no gain / no loss basis. 
• No time limit on the no gain / no loss treatment for assets that are subject to a formal divorce agreement. 
• Where a spouse or civil partner retains an interest in the former marital home, and hasn’t acquired a new main residence, they will have the option to claim Private Residence Relief (PPR) on their share when it is finally sold. 
• A further extension of the PPR rules would apply where an individual transfers their interest in the former matrimonial home to their ex-spouse or civil partner but is entitled to a percentage of the proceeds when that home is eventually sold. Here the departing spouse or civil partner can claim the same tax treatment on the receipt of those proceeds that applied when they transferred their original interest in the home to their ex-spouse or civil partner. 

What next? 

 We are still in the dark as to whether or not the changes will be implemented, and this uncertainty is unhelpful for couples who are in the process of separation.  

 If you have any questions or would like assistance please contact CBW’s tax team, who will be happy to discuss how we can assist you.