28th July 2022No gain/ No loss: divorce rule changes

Divorcing couples are now given more time to transfer assets under “No Gain/ No Loss” rules

The Government have recently announced proposals to change the tax rules which impact married couples and civil partners going through a divorce.

The proposals, which are scheduled to come into effect from 6 April 2023, will extend the timeframe where separating couples can transfer assets between them without triggering a tax charge; known as ‘No gain/ No loss’ transfer.

Under current rules, separating couples have only until 5 April following their separation to transfer assets under the No gain/ No loss provisions. Transfers after this are potentially taxable.

The proposed changes, if enacted, will extend the No gain/ No loss rules by up to three years – or longer if the disposal is part of a formal divorce agreement.

Importantly, the changes are expected to apply to transfers made on or after 6 April 2023. If couples or civil partners are currently in the process of going through a divorce, if possible, it may be beneficial to delay the transfer of assets until 6 April 2023.

Other changes impact the tax position of the former family home. Under the proposed changes a spouse or civil partner, who continue to retain an interest in the former matrimonial home, will be given an option to claim Private Residence Relief (PPR) when it is sold – thereby reducing their liability to capital gains tax. Currently the relief is restricted where the sale is more than 9 months after they have ceased to occupy the property as their main home. In addition, where a former spouse is entitled to receive proceeds on the eventual sale of the matrimonial home, the draft legislation would mean that they are entitled to claim PPR, again this should serve to reduce the tax burden.

The above rules are welcome and will allow more time for separating couples to deal with their affairs, reducing their tax liabilities and hopefully making the process fairer for the couple during this rather stressful time.

It is important to get specialist tax advice as early on as possible to ensure any tax exposure is minimised.

Please get in touch with Adam Bonell or Yugna Shah for all your queries.

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