Government proposes relaxation of tax rules on divorce

Legislation is proposed which will relax the current rules affecting couples who separate and divorce.

Spouses and civil partners have been able to transfer assets from one to the other without incurring capital gains tax (CGT). This “no gain no loss” window is only open until 5 April following the date of separation.

The new rules propose that the window will be extended until the end of the tax year at least two years after the separation event and any reasonable time after that which has been set for the transfer of assets in accordance with a financial agreement approved by a Court.

It is planned that these changes will apply to disposals of assets on or after 6 April 2023.

Mike Follis, Head of Family Law at Davies and Partners commented; “This change is overdue and welcome. It will allow couples to arrange their affairs in a more orderly fashion when facing divorce. Further there are benefits in delaying the tax payment when family finances are stretched. The government’s policy paper can be found here

The paper refers to there being a financial agreement approved by the Court and I suspect that the detailed legislation will include situations in which there is a contested hearing and a Court order i.e. no agreement”.

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