HMRC intends to change the rules on transferring assets between spouses and civil partners who are in the process of separating and are no longer living together.
What are the current rules?
Currently, spouses and civil partners can transfer assets between themselves without any tax ramifications, up to, and including, the year they permanently separate. After this, any transfer of assets is subject to Capital Gains Tax (CGT).
What this means is if you had bought an asset and it had doubled in price, if you transferred it to your spouse the year after you had permanently separated, the tax payable would be as if you had sold it to a third party.
This tends to mean tax bills can be incurred when assets are transferred as part of the financial settlement.
What are the proposed changes?
The proposed rules for disposals on or after 6 April 2023 are intended to provide valuable time for spouses and civil partners in the process of separating to organise their financial affairs without unwelcome CGT liabilities, which is positive news.
The first change is that spouses and civil partners can transfer assets between themselves without any tax ramifications, up to three years after permanent separation. If the asset is being transferred as part of a divorce settlement, the transfer can happen at any time with no tax ramifications.
The second change ensures that a spouse or civil partner who retains an interest in the former matrimonial home will have the same preferential tax treatment as if they had lived in it when it is sold.
So separating couples don’t need to worry about tax?
Although the proposals are welcome, separating couples will need still need to consider the tax consequences of their proposed financial settlement. Whilst these proposals cover transfers if assets need to be sold to fund a divorce settlement, CGT may still arise. They also do not cover income tax which may be applicable.
