Changes to Capital Gains Tax rules could benefit divorcing couples

New changes to Capital Gain Tax (CGT) rules will see improvements to the ‘no gain no loss’ window, a period of time in which spouses can freely transfer assets between each other without incurring CGT. At present, this only applies to assets transferred in the remainder of the tax year when separation occurs.

What has been proposed?

The Office of Tax Simplifications (OTS) is an independent body that advises the Government on the UK tax system. In a recent letter from the Treasury, it was revealed that the OTS had proposed several changes regarding inheritance tax and CGT. Among these were plans outlining improved tax options for separated and divorcing couples. 

In their proposal, the OTS recommended that the Government should extend the window in which transfers of assets between spouses will not incur CGT, after divorce or separation. At the moment, the ‘no gains no loss’ window only lasts for the reminder of the tax year when a couple separate.  However, the OTS has proposed that the window should be extended until the end of the tax year at least two years after separation or divorce. The Government has since agreed that an extension is appropriate and will be consulting on the details during 2022.

What will this mean for separating couples?

After these new proposals are implemented, couples separating later in any tax year will no longer be at a disadvantage when compared to couples separating earlier in the tax year. Currently, the latter are favoured by having a far longer window to plan their affairs and organise for the tax-free transfer of assets between them. These new proposals will ensure all separating couples have a substantial period of time to utilise the ‘no gain no loss’ window. 

This will have the knock-on effect of reducing the pressure on couples separating, giving them ample time to focus on disclosure, negotiations and/or court proceedings, without having to worry about running out of time, and having to pay CGT before the window expires.  

For further reading on CGT, take a look at our guide here.

When will this be implemented?

Officially, the Government has said they will “consult on the detail over the course of the next year.” Given this, the changes will likely not be implemented until sometime in 2022 at the earliest.  

With the freeze on allowances and potential negative changes on tax rates expected to come, now could be an important time to start reviewing your CGT position while the tax rates and allowances could be more favourable. 

If you’re currently thinking about separating or in the process of a divorce or simply want to know more about your CGT situation and how it may impact your wealth, we are offering free non-committal initial consultations where you can discuss your concerns and goals with one of our professional accredited advisers. Alternatively, you can give us a call on 0333 323 9065 to get in touch with a member of our team to find out more.

Arrange a free consultation

Please note: that the Financial Conduct Authority (FCA) does not regulate estate planning, tax or trust advice.

Changes to Capital Gains Tax rules could benefit divorcing couples.jpg