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A guide to capital gains tax on divorce and separation
Divorce and separation can be emotionally and financially complex, and for many, one key concern is whether Capital Gains Tax (CGT) will apply when assets are divided.
While transfers between spouses and civil partners are generally free of CGT thanks to the spousal exemption, this can change once a couple separates. Knowing when the exemption applies, how property sales are treated, and what reliefs may be available can help you make informed decisions and potentially reduce your tax liability.
Do you pay capital gains tax on divorce or separation?
Spousal Exemption Rules
When spouses or civil partners transfer assets between each other, those transfers are normally exempt from CGT, provided they are “living together” in that tax year.
This exemption only applied until the end of the tax year in which the couple separated. However, from 6 April 2023, the government extended the CGT rules to allow more time for tax-free asset transfers during divorce or dissolution.
Rules that came in from April 2023
Under current legislation (as of 2026), separating couples have:
- Up to 3 tax years after the tax year of separation to transfer assets between themselves without triggering CGT.
- Unlimited time to transfer assets between themselves without CGT if the transfers are made under a formal divorce or dissolution agreement (such as a court order or consent order).
This applies to both divorcing spouses and civil partners ending a civil partnership.
This change provided much-needed breathing room for separating couples and their advisers to arrange a fair settlement without being rushed by tax deadlines.
This applies to both divorcing spouses and civil partners ending a civil partnership.
This change provided much-needed breathing room for separating couples and their advisers to arrange a fair settlement without being rushed by tax deadlines.
How Capital Gains Tax is calculated after separation
Once the exemption window has passed, any transfers of assets between the former spouses or civil partners may be treated as gifts for CGT purposes, meaning the person transferring the asset may be liable for tax based on market value.
Each individual is responsible for their own gains and losses and is taxed accordingly. This means CGT can be different for each party, depending on the assets they receive and their overall tax situation.
You may also be able to use your annual CGT exemption, which as of the 2025/26 tax year is £3,000 per person (note: this amount has been reduced significantly in recent years).
Capital Gains Tax and the family home
The family home (principal private residence) often forms a significant part of a divorce settlement, and its tax treatment deserves careful attention.
Principal Private Residence Relief (PPR)
If the property has been your main residence for the entire period of ownership, you’ll typically qualify for full Principal Private Residence Relief, which exempts the gain from CGT.
However, complications can arise when one spouse moves out before the home is sold or transferred or the property is retained jointly for a period after separation.
Key points for the marital home
- The spouse who remains in the property can usually claim full PPR.
- The spouse who moves out may still claim full PPR if the home is sold or transferred to the other spouse within 3 years of moving out.
- If the property is transferred under a formal divorce agreement, the departing spouse can continue to claim PPR indefinitely, provided certain conditions are met.
Conditions for extended PPR relief
To benefit from this continued relief beyond the 3-year window, the following must apply:
- The property is transferred to the spouse who continues to occupy it as their main home.
- The transfer is made as part of a formal divorce or dissolution agreement (e.g. court or consent order).
- The transferring spouse has not elected another main residence during this time.
This ensures that individuals aren’t penalised with CGT simply for leaving the marital home as part of a fair settlement.
Can you avoid Capital Gains Tax on divorce?
It’s possible to minimise or avoid CGT when divorcing, with careful planning and timing. Here are some tips:
- Use the spousal exemption window effectively, now up to three tax years, or indefinitely with a court order.
- Make use of each person’s annual CGT exemption.
- Consider how to divide assets in a way that balances gains and losses between you.
- Where possible, structure transfers under a formal divorce agreement to extend tax reliefs.
- If selling the family home, check your eligibility for Principal Private Residence Relief.
It’s also important to consider how timing your separation may impact tax planning. For example, separating in April gives nearly a full tax year to plan CGT-efficient transfers, whereas separating late in the tax year (e.g. March) shortens the timeline.
Other considerations include, if the property is larger than 0.5 hectares (about 1.2 acres), only the main house and permitted garden may qualify for full PPR. Also, if you or your ex-spouse move abroad, non-resident CGT rules may apply.
Lastly, CGT planning should be integrated with broader financial and legal advice as part of your settlement.
How we can help
Changes to rules mean that paying Capital Gains Tax on divorce or separation offers greater flexibility and relief, especially when transfers are made under formal agreements. However, by understanding the updated rules around spousal exemptions, PPR, and settlement structuring, it’s possible to minimise or even avoid CGT exposure during a divorce.
If you’re navigating separation and unsure of your tax position, it’s a good idea to speak with a qualified financial planner or tax adviser.
If you need advice on financial planning during divorce, arrange a free consultation to discuss your situation and get tailored guidance.
This article is intended for general information only, it does not constitute individual advice or leagal decisions and should not be used to inform financial decisions.
The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.
The Financial Conduct Authority (FCA) does not regulate estate planning, tax, or trust advice.
