Capital Gains Tax  

What would changes to CGT rules mean for divorcing couples?

  • Describe the changes to the CGT regime for divorcing couples
  • Identify the level of tax applied to the transferred asset
  • Explain what happens to cohabiting couples
What would changes to CGT rules mean for divorcing couples?

In April of this year, when the law changed to allow couples to divorce without assigning fault to either spouse and without a lengthy separation, most – if not all – family lawyers agreed the changes would help to reduce conflict and allow separating couples to focus on important issues like children, property, and finances. 

This has already proven to be the case in the months since the reforms came into effect.

However, the removal of one legal obstacle reminds us that there are others still in place that continue to foster unnecessary conflict and can cause issues for separating couples, whether married or in a civil partnership, who just want to achieve the best possible outcome for their family and finances going forward.

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CGT rules

The rules around capital gains tax have long been criticised for how they apply to individuals going through a divorce and dividing their assets. This is for many reasons.

The main cause of concern has long been that the CGT rules differ from the rules that apply to other forms of tax on divorce in that they do not allow for tax-free transfers between spouses or civil partners up until the decree absolute.

That is the point in the divorce when the marriage is legally dissolved and is usually at least six to eight months after the divorce application is made, allowing couples time to reflect and, on a practical level, to resolve the division of their finances.






Instead, the relevant date for divorcing couples for CGT purposes is the date of separation, which is regularly a source of dispute entirely in and of itself (even a couple who continue living under the same roof can be ‘separated’). 

If spouses can reach agreement and transfer their assets between them within the tax year of their separation, these transfers are on a no gain/no loss basis. This means, for instance, if a couple separated on June 1 2021, they had nine months up to and including April 5 2022 to transfer assets between them without triggering a CGT charge.

This allows several months for them to commence the divorce application; reach agreement on the division of their finances with the assistance of legal and financial advisers where necessary; sign a consent order and have it approved by the family courts to close their financial claims against each other; and then implement the transfers – all without incurring any immediate CGT liability.

However, the same deadline would also apply to a couple who separated in March 2022, giving them a matter of weeks or even days to undertake the same process.

The reality is far from ideal, often requiring a couple in the very early stages of a separation to either make a snap decision about the transfer of assets and rush through the administration to do that, without full advice or consideration of the overall outcome, or to face a tax liability when they do reach an agreement.