Important new tax rules for separating couples

As Rebecca Laffan reported in April of last year, Capital Gains Tax rules for separating couples are changing.  Following the Spring Budget, we now know that these rules are coming into force in April 2023.

What are the new rules?

The new rules are a great improvement for separating couples who have been married or in a Civil Partnership and mean that they can take advantage of CGT exemptions for longer than ever before.

Historically, property had to be transferred between parties in the tax year that they separated to avoid any Capital Gains Tax liability arising – this could mean that if you separated in March, you had only a month to agree what would happen to a property, and to complete any transfers you had agreed before tax may have applied.

Under the new rules, however, couples will have up to 3 years to make transfers between themselves without incurring a tax liability.  This period will end sooner if a divorce or dissolution is finalised before the 3 years is up, however if you have entered into a financial Consent Order setting out how the property is to be dealt with, there is no time limit in place.

The new rules also protect you if you have agreed that a property will stay in joint names for a period of time and be sold further down the line (for instance when the children are grown up).  In this instance, the tax rules will apply in the same way as if you dealt with the property when you separated.

Finally, under the new rules, it may also be possible to claim principal private residence relief (another form of CGT exemption) on the former family home, although this will depend on your circumstances, and whether you are already claiming such relief in respect of another property.

Are there any exceptions?

There are some important exceptions to be aware of:

• If you do not have your settlement recorded in an Order, and the property is transferred more than 3 years after you separate, or after your divorce or dissolution has been finalised, then these rules will not apply, and you may incur a tax liability when you deal with the property;
• If you are not married, these rules will not apply at all, and so it is important to take early advice as soon as possible to try and minimise your liability;
• If you pay tax in more than one country, although you will likely still be exempt in the UK, you may have tax to pay abroad.

What should I do now?

This is a complicated area, and it is important to make sure you take proper advice as soon as possible, it may also be necessary to speak to a qualified tax advisor if your situation is not straightforward.  It is also essential to make sure that any agreement you reach with your spouse or civil partner is recorded in a binding agreement to maximise your protection from tax liabilities.

At Harrowells, we can help you to understand the situation in which you find yourself, and put you in touch with such an advisor if appropriate.  Please contact our Family Law Team, who will be happy to advise you about your individual circumstances.