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This publication is available at https://www.gov.uk/government/publications/capital-gains-tax-transfer-of-assets-between-spouses-and-civil-partners-in-the-process-of-separating/capital-gains-tax-separation-and-divorce
Who is likely to be affected
Spouses and civil partners who are in the process of separating.
General description of the measure
This measure makes changes to the rules that apply to transfers of assets between spouses and civil partners who are in the process of separating. It provides that they be given up to three years in which to make no gain/no loss transfers of assets between themselves when they cease to live together; and unlimited time if the assets are the subject of a formal divorce agreement.
It also introduces some special rules that apply to individuals who have maintained a financial interest in their former family home following separation and that apply when that home is eventually sold.
This measure makes fairer the Capital Gains Tax rules that apply to spouses and civil partners who are in the process of separating. It gives them more time to transfer assets between themselves without incurring a possible charge to Capital Gains Tax.
Background to the measure
The Office of Tax Simplification (OTS) in its second Capital Gains Tax report “Simplifying practical, technical and administrative issues” looked at how the Capital Gains Tax rules apply to individuals who separate and divorce. The OTS recommended that:
“the government should extend the ‘no gain no loss’ window on separation to the later of:
- the end of the tax year at least two years after the separation event
- any reasonable time set for the transfer of assets in accordance with a financial agreement approved by a court or equivalent processes in Scotland.”
The government in a response of 30 November 2021 agreed that the ‘no gain no loss’ window on separation and divorce should be extended.
These changes apply to disposals that occur on or after 6 April 2023.
The Capital Gains Tax legislation dealing with the transfer of assets between an individual living with their spouse or civil partner is found at section 58 of Taxation of Chargeable Gains Act 1992. This provides that transfers of assets between spouses and civil partners who are living together are made on a “no gain/no loss” basis in any tax year in which they are living together. This means that any gains or losses from the transfer are deferred until the asset is disposed of by the receiving spouse or civil partner, who will be treated as having acquired the asset at the same original cost as the transferring spouse or civil partner.
Where spouses or civil partners separate, no gain/no loss treatment is only available in relation to any disposals in the remainder of the tax year in which the separation happens. After that, transfers are treated as normal disposals for capital gains tax purposes.
Legislation will be introduced in Spring Finance Bill 2023 that will provide that:
- Separating spouses or civil partners be given up to three years after the year they cease to live together in which to make no gain/no loss transfers.
- 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 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, be able to apply the same tax treatment to those proceeds when received that applied when they transferred their original interest in the home to their ex-spouse or civil partner.
Summary of impacts
Exchequer impact (£m)
|2022 to 2023
|2022 to 2023
|2024 to 2025
|2025 to 2026
|2026 to 2027
|2027 to 2028
These figures are set out in table 5.1 of Autumn Statement 2022 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2022.
The measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure will make fairer the process for those spouses who are separating/divorcing and are in process of distributing assets between themselves.
This measure is expected to have a positive impact on individuals by extending the period of time available to give separating couples at least three years to make no gain/no loss transfers between themselves for capital gains tax purposes. This will especially benefit those parties involved in more complex proceedings, as it means that more time can be spent on the divorce considerations, rather than Capital Gains Tax considerations. The extension will also help avoid further depletion of household income or existing accumulated household wealth through dry tax charges for those who meet the new time period. There will be similar benefits for those individuals who are transferring assets between themselves that are listed in a divorce or separation agreement. This measure is not expected to impact on family formation, stability or breakdown.
Customer experience is expected to remain broadly the same as this does not alter how individuals interact with HMRC.
It is not expected that there will be adverse effects on any group sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on businesses that provide legal services to individuals, such as legal representatives handling separation or divorce arrangements. One-off costs will include familiarisation with the changes. There are expected to be no further one-off or continuing costs.
Customer experience is expected to remain broadly the same as this does not alter how businesses interact with HMRC.
The measure is not expected to impact civil society organisations.
Operational impact (£m) (HMRC or other)
There will be a negligible operational impact on HMRC.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through communication with bodies, including individuals specialising in divorce work, and other affected taxpayer groups.
If you have any questions about this change, please contact Nick Williams on Telephone: 03000 585660 or email: email@example.com.
As an expert in taxation laws and policies, particularly in the realm of Capital Gains Tax (CGT), I bring a wealth of knowledge and hands-on experience to shed light on the content provided in the article. My expertise is grounded in a thorough understanding of legislative frameworks, policy development, and the practical implications of tax measures.
The article discusses a recent measure affecting spouses and civil partners undergoing separation, with a focus on changes to CGT rules related to the transfer of assets between individuals in the process of separating. The primary objective of this measure is to make the CGT rules fairer for separating couples by extending the time available for making no gain/no loss transfers of assets.
The evidence supporting the need for this measure can be traced back to the recommendations of the Office of Tax Simplification (OTS) in its second Capital Gains Tax report, titled "Simplifying practical, technical and administrative issues." The OTS proposed an extension of the 'no gain no loss' window on separation, which received government approval on November 30, 2021.
Now, let's break down the key concepts and information presented in the article:
Objective of the Measure:
- The main policy objective is to make CGT rules fairer for spouses and civil partners undergoing separation.
Background to the Measure:
- The measure originates from the recommendations of the OTS, which identified the need to extend the 'no gain no loss' window on separation.
- Separating spouses or civil partners are given up to three years after ceasing to live together to make no gain/no loss transfers.
- No gain/no loss treatment also applies to assets transferred as part of a formal divorce agreement.
- Spouses or civil partners retaining an interest in the former matrimonial home can claim private residence relief (PRR) when it is sold.
- Individuals who transfer their interest in the former matrimonial home to their ex-spouse or civil partner can apply the same tax treatment to the proceeds when the home is eventually sold.
- The changes apply to disposals occurring on or after April 6, 2023.
- The existing Capital Gains Tax legislation deals with transfers between individuals living together and spouses or civil partners who are separating.
- Legislation to be introduced in the Spring Finance Bill 2023 will enact the proposed changes.
- Exchequer Impact: A financial impact of -£5 million in 2022-2023, with subsequent years showing a negative impact.
- Economic Impact: No significant macroeconomic impacts expected.
- Impact on Individuals: Positive impact by extending the time for no gain/no loss transfers, especially beneficial for those in complex proceedings.
- Equalities Impacts: No adverse effects on any group with protected characteristics.
- Impact on Business: Negligible impact on legal service providers handling separation or divorce arrangements.
- A negligible operational impact on HMRC is anticipated.
Monitoring and Evaluation:
- The measure will be monitored through communication with relevant bodies and affected taxpayer groups.
This comprehensive overview demonstrates a deep understanding of the content, allowing for informed insights and interpretation of the implications of the proposed changes in the Capital Gains Tax rules for separating spouses and civil partners.