Divorce and Capital Gains Tax

In this article, our specialist family law solicitors look at the latest rules on divorce and capital gains tax.

Initial Discussion

This summary provides general information and does not constitute legal advice on any individual circumstances.

For an initial discussion and a no-obligation quote, get in touch with us today by simply calling us on 01234 343134 or email us at enquiries@fullersfamilylaw.com and a member of our team will get back to you.

Understanding Capital Gains Tax

Capital gains tax is a tax imposed on the profit made from selling or disposing of certain assets, such as property, investments or valuable possessions. When a couple divorces, the division, sale, or transfer of assets may trigger a CGT liability. It is vital that you and your spouse understand the potential CGT liability so you can structure your financial settlement in the most tax-efficient way.

Capital Gains Tax Rules on Divorce

When a couple separates or divorces, they may need to sell or transfer assets, such as the family home, a buy-to-let property, a holiday home, investments, or shares in a family business. Some of those assets may be capital gains tax exempt such as the family home if it is a principal private residence. Other asset disposals may be liable to CGT.

The CGT rules on divorce changed in April 2023 so it is important that you get the latest specialist advice from your accountant. If you do not do so you may end up with an unexpected and large tax bill that you are liable to pay. You may have thought that you achieved a great financial settlement by negotiating direct or by not taking expert legal advice but it may have been a false economy if you end up paying HMRC a large amount in tax, meaning that in real terms you end up with less than your husband or wife.

The New CGT Rules

The new CGT rules give divorcing couples more time to minimise CGT liability. Under the old tax rules, a couple had to transfer assets between themselves within the tax year of separation to avoid CGT but the rules are now more generous as a couple has more time following separation to transfer assets without triggering a CGT charge. The new time limit is up to three years following the tax year of separation or at any time as part of a formal divorce agreement or court order.

In addition, there is greater flexibility if your financial settlement involves the deferred sale of an asset, as you may still benefit from principal private residence relief if you have left the family home and it is subsequently sold to a third party.

Specialist Tax Advice and Reports

Obtaining a joint specialist report from a tax advisor or accountant may be beneficial financially to understand exactly how much CGT is likely to be payable when an asset is disposed of. Specialist tax advisors and accountants have the knowledge and experience to understand when CGT is payable and what exemptions or allowances may be available in order to provide an accurate CGT calculation. Often getting the experts in early can save you time, money and stress.