The Office of Tax Simplification (OTS) have made many recommendations to HM Revenue & Customs (HMRC) on our tax system and one area that HMRC have taken note of is the capital gains tax rules on the transfer of assets for separating spouses and civil partners.
Under the current rules assets can only be transferred with no capital gains tax implications between spouses or civil partners in the tax year of separation. After this there can be capital gains tax implications. The recent draft legislation published gives significantly more time to make transfers. The new rules are planned to take effect for disposals on or after 6 April 2023.
Under the new rules separating spouses or civil partners will be given up to three years after the year they separate in which to make transfers of assets with no capital gains tax implications.
This will be extended to assets that separating spouses or civil partners transfer between themselves as part of a formal divorce agreement, even if this is after three years.
A spouse or civil partner who retains an interest in the former matrimonial home will be given an option to claim private residence relief when it is sold; and some individuals who transfer their interest in the former matrimonial home to their ex-spouse or civil partner are entitled to receive a percentage of the proceeds when that home is eventually sold. They will be able to apply the same tax treatment that applied when they transferred their original interest in the home to their ex-spouse or civil partner to the proceeds received on the eventual sale.
These are welcome changes and will give more time for planning at what is a difficult time.
Rebecca Oatley is an Associate Partner at A C Mole and part of the Tax Team. Rebecca can be contacted at our Taunton office or by email on firstname.lastname@example.org.