Capital gains tax and divorce – an update

Giles Robinson, Family Law Partner, provides an update on the capital gains tax implications of a divorce.

Capital gains tax (CGT) is a tax on the profit made by a person when something that has increased in value is disposed of, which could include selling it, giving it away or transferring it to someone else.  However, when transferring an asset to a spouse or civil partner the ‘no gain/no loss’ principle applies, and CGT is not incurred. This does not benefit couples who have not entered into a marriage or civil partnership.

When a couple who are married or in a civil partnership separate they do not have to pay CGT on the assets that are transferred or otherwise disposed of to their former spouse/civil partner provided that disposal occurs prior to the end of the tax year of separation.  After that, transfers between them will be deemed to be disposals at their market value.  

There are special rules that apply to the family home.  CGT does not apply when selling a property that qualifies as a person’s principal private residence.  That is also the case when transferring the property between separated spouses/civil partners. The problems start to arise when one of the couple has moved out.  

Until now, the ‘principal private residence’ exemption has also applied for a period of eighteen months after moving out.  However, from 6 April 2020 the qualifying period will drop to nine months – which could be a significant consideration for the party who has left the family home.  

It is also worth noting that from 6 April 2020 a person will only have thirty days to notify HMRC of the CGT owed and to pay it.  If this does not happen then a penalty may be incurred, as well as interest.  

For more information on this matter, please contact:

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