Capital Gains Tax & Divorce
'Old rumours (emphasis on rumours) about Prince William’s alleged affair with the Marchioness of Cholmondeley have been dusted off amid Kate’s absence from the spotlight—but, to be clear, there are no specific reasons these rumours are in circulation again. They’ve simply taken on a life of their thanks to some UK publications writing (or possibly just updating) articles about Rose at the most side-eye-inducing moment possible.'
Worrying rumours (sic) in the press like this have also serious tax implications. 'No fault divorce' introduced in England means couples can now file for divorce without apportioning blame but couples still have capital gains tax (CGT) to consider.
From 6 April 2023 asset transfers between married couples ceasing to live together the family property disposal is on a ‘no gain/no loss basis’ provided the asset transfer is made before the earlier of—
(i) the last day of the third year of assessment after the year of assessment in which the parties ceased to live together, or
(ii) the day on which a court grants an order or divorce decree.
After these dates a capital gains tax (CGT) computation may well be required on a marital asset transfer.
Example (fanciful)
Will and Kate, a married couple, separate in the year ending 5 April 2025 so, barring the earlier issue of the final order (previously called a decree absolute) or a court order dissolving or annulling their marriage then their main property asset may be transferred between the parties on a ‘no gain/no loss basis’ within 3 years.
Additionally, a CGT election enabled the right to receive continuing principal private residence (PPR exemption) relief on the previously shared family home. Where an individual ceases to live with their spouse or civil partner in what was both their only or main residence a claim means PPR relief is given for the former family home. Therefore, PPR relief could be lost on other subsequent occupied properties by the other party. In view of this, it is always recommended that care should be taken when calculating the benefit of this election. From 6 April 2023, the PPR claim applies until it is eventually disposed of to someone other than the former spouse i.e. sold to a third party. Where the Court Order (previously Martin and Mesher orders requires that the family home be transferred to one party such that a deferred sum is due to the other party at a later date when the family home is sold or transferred.
The Royals voluntarily pay income tax and CGT and so too can we all, if we don't follow the new rules! This extension of the CGT relief is a welcome change as the Family Courts throughout the country currently have substantial delays. Separation and divorce are difficult times and with the new CGT rules, it is wise to get advice especially when the Court needs to be involved.
If this is an area of tax that affects you then please contact jreeves@taxmatters.tax or 01442 828006