HMRC have recently published a number of items of draft legislation for inclusion in the next Finance Bill. Among them are some helpful relaxations of the rules on marriage (or civil partnership) breakdown.
At present, the general ability to transfer assets between spouses (or civil partners) without risk of capital gain arising (the ‘no gain, no loss’ treatment) lasts only until the end of the tax year in which the parties permanently separate.
In future, that treatment will be extended by a further three years or until the date of divorce (etc) if that is sooner.
The guidance published alongside the draft legislation indicates that the period is extended indefinitely in relation to any disposal made in pursuance of a court order; but the draft legislation itself provides for this indefinite extension to apply if the disposal is made pursuant to any agreement (i.e. not limited to court orders) made in connection with the breakdown of the marriage or civil partnership. Hopefully the position will be clarified before the draft legislation becomes law.
The other changes are in relation to disposal of the former marital home. The main change applies where one of the parties to the marriage or civil partnership leaves the family home and transfers their share in it to the other on terms that the transferor will get a share of any profit made on a subsequent sale. The new rule makes the transferor’s share of profit exempt from tax to the same extent that any gain on the original transfer was exempt (or would have been but for the no gain no loss treatment applying to it).
These rules will (assuming that they are enacted) have effect for disposals made after 5 April 2023 and may in some cases significantly reduce the tax costs of relationship breakdown.
For more information, please get in touch with your usual BKL contact or use our enquiry form.