- Written by
- Anahita Zandi, Solicitor
What is Capital Gains Tax (‘CGT’)?
CGT is the tax someone pays on the profit they make when they dispose of or sell an asset. This means that tax is paid on the gain made rather than on the money that has been received.
CGT is payable on the disposal of:
- The majority of personal possessions worth £6,000 or more, apart from a car;
- Property (unless it is the main residence – CGT is however payable if the main residence has been let out, used for business or is very big);
- Shares (unless in an ISA or PEP);
- Business assets; and
- Cryptocurrency (potentially).
Under the current legislation, separating spouses or civil partners do not have to pay CGT on the sale or transfer of the former matrimonial home provided that the sale or transfer occurs in the same tax year as the separation. This is typically called the ‘no gain no loss’ period and means that once the tax year is over, the separating couple is liable for tax).
For example: If a couple separated 1 December 2021, they would have until the 5 April 2022 to transfer assets between them, any transfers after that date would attract CGT.
This example highlights the clear issues with this time limit because in the financial proceedings that follow a separation it usually takes far longer than just four months to reach financial resolution between parties.
The government has proposed changes to the current law that are due to be introduced and implemented under the Financial Bill 2022-23 from 6 April 2023. The changes are as follows:
- An extension to the ‘no gain no loss’ period for up to three tax years after the end of the tax year of separation;
- No time limit on the ‘no gain no loss period’ if the assets involved are being transferred as part of a formal separation agreement;
- Extending the spousal exemption to third parties when the former matrimonial home is sold to a third party, if certain conditions are met; and
- Allowing the spousal exemption to apply to the future proceeds of sale of the former matrimonial home when one party has previously transferred their interest in the home to the other party in exchange for a portion of those proceeds.
What is the importance of these changes for separating couples?
These proposals are advantageous for several reasons:
- The time period is far more realistic, and reflective of how divorce works in real life;
- They allow parties to seek independent legal advice, and to work out what their needs are (this isn’t always easy or straightforward); and
For example: If a couple separated 1 December 2021, they would have until 5 April 2027 unless they have already received their final order (when your marriage has legally ended).
If you have any queries or wish to discuss anything regarding CGT and how it affects separating couples, please do not hesitate to contact the Family Team at Thackray Williams LLP on 0208 290 0440.