The recent Court of Appeal decision in Owens v Owens [2017] EWCA Civ 182 has received some publicity. This was the case involving a very unhappy wife who (as was accepted by the court) found it impossible to carry on living with her husband but who was nonetheless, because of the vagaries of the English law of divorce, unable to compel a divorce. The upshot was that Mrs Owens probably needs to put up with her misfortune for several more years.
Tax was probably about as far from the thoughts of Mr and Mrs Owens as it’s possible to get. But the case got us thinking about the treatment of married couples, especially as regards CGT. In particular, the “no-gain no-loss” rule on inter-spouse transfers continues to apply to a married couple (and, it goes without saying, to partners in a civil partnership) unless
- they are separated under a court order or
- they are separated by deed of separation or
- they are in fact separated in circumstances likely to be permanent.
And (in any case) the special rule continues to apply until the end of the tax year in which the separation occurs – which may be why so few couples apparently separate towards the end of March and so many apparently stick it out until after 5 April.
Having read the case, we would say with some confidence that Mr and Mrs Owens are now separated in circumstances likely to be permanent. However they (and other separated but non-divorced couples) will need to bear in mind that they remain “connected persons” until any divorce becomes absolute. This means the special tax rules governing transactions between connected persons apply. In particular:
- all transactions between them are conclusively deemed to have been non-arm’s-length transactions such that market value must be applied for tax purposes and
- any CGT loss which arises on a disposal made by one to the other is a “clogged” loss, use of which is severely restricted
For more on this and on the many other tax issues which may arise on marriage breakdown you may wish to refer to our webinar: Tax aspects of relationship breakdown. (But please bear in mind that it reflects the law and practice at the time the webinar was produced in 2015.)
Alternatively, please get in touch with your usual BKL contact or use our enquiry form.
