Divorce or dissolution can be a painful process, but new rules should ease some of the tax complications couples face when splitting assets.
The changes relate to capital gains tax (CGT). Under UK tax rules, assets can be transferred between married couples and civil partners without triggering a CGT charge. But difficulties can arise once a relationship breaks down.
Under the old rules this exemption only applied to assets transferred within the tax year of separation — giving some couples just months to sort their finances tax efficiently.
The new rules, which came into force this April, give separating couples welcome breathing space. Couples now have up to three years to transfer assets without incurring CGT. If this transfer is part of a formal separation agreement, then there is no time limit on this CGT exemption.
This relaxation of the CGT rules will also benefit couples who own a house together. Ordinarily the sale of a family home is not subject to CGT if it is your primary residence – under Private Residence Relief (PRR) rules.
However, if a couple splits and one partner moves out, before April this year they could have lost this PRR after nine months. This meant they could have faced a significant tax bill if the house was subsequently sold, and the gain was above the CGT threshold – currently £6,000.
Now separating couples have at least three years to sell a property before this tax applies. In addition, the leaving spouse or partner can now elect how their PRR is split between a former family home and any other property they might have since acquired.
The changes should help many couples who now don’t have to sell the family home during their separation, two hugely stressful life events, in order to avoid a substantial tax bill.
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