Transfers on divorce – What are the Capital Gains Tax implications

When a married couple/civil partnership separate, care needs to be taken to ensure that all parties are aware of the Capital Gains Tax (CGT) implications of any transfer of assets that take place between the couple. If the transfer is not arranged or timed correctly, there could be a CGT charge on assets (e.g. a rental property) that is transferred. The proceeds for working out the gain will be based on the deemed market value of the asset.

Relevant time limits

Prior to 6 April 2023, a divorcing couple only had until the end of the tax year in which they separated to transfer assets across at without a CGT charge arising. However, since 6 April 2023 HMRC have extended this time limit to the earliest of the following dates:

1. Three years from the end of the tax year of separation
2. The date of divorce

So for example, if a couple separated on 10 April 2023, they would have until 5 April 2027 to transfer assets across without incurring a CGT charge, providing the date of divorce is not at an earlier date.

What happens if a court order is in place

It is worth noting that if assets are transferred in accordance with a formal divorce or separation agreement or court order, they will be transferred free of CGT without any time limit. So, if this was in place for the couple who separated on 10 April 2023, assets could potentially be transferred across free of CGT even beyond 5 April 2027 if arranged correctly.

Future impact

The individual who receives the property from their former spouse, inherits the original base cost from the spouse who transferred the property over. This will have an impact on determining the level of CGT due on any later disposal. The gain will be calculated on the difference in value between the sale date of the property and what the spouse who made the transfer actually paid for the property.

The above is only an overview of this subject. Should you wish to know more and see how the above rules apply to your situation please do get in touch with Joe Wilson on 023 8046 1237 or email Joe Wilson.