The government has released a draft tax legislation before its potential inclusion in the Finance Bill 2022–2023 to allow for technical consultation. The upcoming Finance Bill will include some helpful relaxing rules governing a marriage’s dissolution.
Currently, the “no gain, no loss” treatment—the overall capacity to transfer assets between spouses (or civil partners) without risk of capital gain arising—lasts only through the end of the tax year in which the parties formally divorce.
Draft legislation has now been released for technical review, which will be closed by 14 September 2022. By the recommendations, the parties will have up to three complete tax years after they stop living together to transfer assets without incurring a gain or loss.
As a result, the news gives more time to complete an asset share agreement in cases where separation may be exceptionally challenging. If the assets are a part of a legal separation agreement, it is proposed that there will be no time limit.
The proposed legislation goes beyond what the OTS suggests to HMRC. It offers:
- The end of the tax year is at least two years after the separation event.
- When the former marital dwelling is sold, a spouse or civil partner still has a stake in it and will have the option to apply for private residence relief.
- When the former marital house is eventually sold, certain people who transfer their interest in it to their ex-spouse or civil partner are entitled to a portion of the proceeds. The proceeds from the ultimate sale will be subject to the same tax treatment as when they sold their initial interest in the house to their ex-spouse or civil partner.
These changes are set to be affected to disposals on or after 6 April 2023. Please contact your usual Legend Financial contact or another member of our Tax team for further information on the proposed legislation changes to capital gains tax and inheritance tax. We provide a free introductory consultation to go over your specific circumstances.
Draft Finance Bill 2022-23: personal tax measures. (2022). Retrieved from ICAEW: https://www.icaew.com/insights/tax-news/2022/jul-2022/draft-finance-bill-2022-23-personal-tax-measures
Finance Bill 2022-23. (n.d.). Retrieved from gov.uk: https://www.gov.uk/government/collections/finance-bill-2022-23
Capital Gains Tax: disposals of land and residences for limited liability partnerships and Scottish partnerships. (n.d.). Retrieved from gov.uk: https://www.gov.uk/government/publications/capital-gains-tax-disposals-of-land-and-residences-for-limited-liability-partnerships-and-scottish-partnerships
Capital Gains Tax: transfers of assets between spouses and civil partners in the process of separating. (n.d.). Retrieved from gov.uk: https://www.gov.uk/government/publications/capital-gains-tax-transfers-of-assets-between-spouses-and-civil-partners-in-the-process-of-separating
Money and property when you divorce or separate. (n.d.). Retrieved from gov.uk: https://www.gov.uk/money-property-when-relationship-ends/tax