From 6 April 2023, married couples or civil partners who separate will be given a window of up three tax years following the year of separation in which to make the transfer of assets on a “no gain, no loss” basis for Capital Gains Tax (CGT) purposes.
Currently, married couples or civil partners can transfer assets between themselves without incurring a CGT charge and this relief extends to the tax year in which they separate. However, after that, any transfer is deemed to take place at market value, often resulting in a tax charge.
For example, couples separating on 1 March 2022 would only have until 5 April 2022, a total of 36 days from the date of separation, in which to transfer any chargeable assets without incurring a CGT liability. This means the time to arrange their tax affairs is unfairly shorter than couples separating earlier in the tax year.
The new rules, which apply to disposals on or after 5 April 2023, allows for couples who separate in the current tax year (2022/23) to take advantage of both the existing and new rules. Transfers arising in the current tax year up to 5 April 2023 will be covered under the existing “no gain, no loss” provisions, with any transfers taking place on or after 6 April 2023 being covered under the new rules - up to a period of three tax years.
Dependant on the stage of the divorce proceedings, couples who have separated before 6 April 2022 may still benefit under the new rules for any assets transferred on or after 6 April 2023.
This is a welcome relaxation of existing legislation that will ease proceedings for couples, in what can only be described as a difficult time for them.