Capital Gains Tax - separation and divorce (2024)

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.

Policy objective

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.

Detailed proposal

Operative date

These changes apply to disposals that occur on or after 6 April 2023.

Current law

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.

Proposed revisions

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)

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.

Economic impact

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.

Equalities impacts

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

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.

Further advice

If you have any questions about this change, please contact Nick Williams on Telephone: 03000 585660 or email: cgtbudget@hmrc.gov.uk.

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