Divorce Duties

by | 5 October 2022

The Ministry of Justice published statistics showing that there were 33,234 divorce applications in England and Wales under the new legislation, which came into effect from 6 April 2022. Whilst the Finance Bill 2022-23 tracks through Parliament detailing the April 2023 changes, here is a reminder of the current tax environment.

Spouses and civil partners who live together can transfer assets on what is known as a no gain no loss basis. The effect of this results in the cost of the asset transferring to the new owner without triggering a Capital Gains Tax liability. Currently the rules permit this provision to continue only in the tax year of separation (6 April – 5 April), which does not provide a couple with a lot of time to consider their emotional decision, let alone financial.

Key assets subject to Capital Gains Tax:

  • Property and land
  • Certain investments outside of tax-free wrappers
  • Chattels valued above £6,000
  • Business assets

Existing Private Residence Relief (PRR) and Stamp Duty Land Tax elections are available to help mitigate an individual’s tax situation regarding primary residences.

From April 2023 it is expected that:

  • Separating spouses or civil partners will be given up to three years after the year they cease to live together in which to make transfers on the no gain no loss basis.
  • The no gain no loss treatment will also apply to assets that separating spouses or civil partners transfer between themselves as part of a formal divorce agreement.
  • A spouse or civil partner who retains an interest in the former matrimonial home will be given an option to claim Private Residence Relief (PRR) when it is sold.
  • Individuals who have transferred their interest in the former matrimonial home to their ex-spouse or civil partner and are entitled to receive a percentage of the proceeds when that home is eventually sold, will be able to apply the same tax treatment to those proceeds when received that applied when they transferred their original interest.

Capital Gains Tax has been our focus in this article, but is not the only tax consideration when negotiating your divorce agreement.


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