For a long time now, when going through a divorce, the window to resolve matters before a tax liability starts to arise is incredibly short. Thankfully, a review has been taking place in the background that will hopefully help couples through this stressful period, without tax being suffered unnecessarily.
Back in May 2021, the Office for Tax Simplification (OTS) prepared a report for the government, looking at methods to simplify practical, technical and administrative issues.
One of the recommendations from the OTS is a proposed change to the Capital Gains Tax treatment of divorcing couples.
Under current rules, divorcing or separating married couples and civil partners can only continue to benefit from transferring assets to one another on a “no gain, no loss” basis (without triggering Capital Gains Tax liabilities) in the tax year in which they separate.
This is problematic where couples separate towards the end of the tax year, or are simply unaware of the rules, meaning that one spouse may have to pay Capital Gains Tax of up to 28% to transfer assets to the other.
The OTS has recommended that the “no gain, no loss” window on separation should be extended to the later of:
- The end of the tax year, at least two years after the separation event; or
- Any reasonable time set for the transfer of assets in accordance with a financial agreement approved by a court or equivalent process in Scotland.
The government has accepted the OTS’ proposal that the “no gain, no loss” window on separation and divorce should be extended and will consult on the details of the revised timeframe over the course of the next year.
Couples looking to separate should seek tax advice as soon as possible to ensure that they fully understand the Capital Gains Tax treatment relevant to their circumstances.
If you have any questions about capital taxes generally, or matters specifically relating to divorce, please contact [email protected] or by phone at 023 8061 3000.
