Capital Gains Tax: The new rules in relation to family homes involved in divorce

As of the 6th April 2023 there are new rules incoming that are significantly going to change the way Capital Gains tax (CGT) applies to those who are divorcing. The changes, brought about by the Finance Bill 22-23 aim to simplify the rules for both practitioners and those going through a divorce.

Previously, the rules meant that the rules were based around a date of separation (upon which not all parties necessarily agree) and often stretched parties at a time when they are often adjusting to much leaner financial times because of the separation.

So, what are the changes to CGT rules?

Couples will be given three years from the tax year of separation in order to make transfers of their property on a tax free basis meaning there is a significant extension of time for which a property can be transferred before CGT becomes payable.

This is further extended if the agreement takes place in accordance with  a financial agreement approved by the court known as a Consent Order. In those circumstances if the transfer of the property will be tax free regardless of the period of separation.

Any spouse that retains the family home and lives there as their home has the option to claim PPR ( Principal Private Residence ) relief whereby if they have the property as their main home there will be no CGT when they come to sell.

If a person transfers their share of the family home to their spouse but is entitled a share of the proceeds when the home is sold at an agreed later stage they will also not need to pay CGT for the growth in value of the property at that time.

So, it’s a good thing?

In short, yes. Those divorcing , obtain decree absolutes and having financial orders associated with their divorce will have the benefit of improved capital gains  protection as to the transfer of the family home or sale. This change however does not improve the position as to capital gains tax for cohabiting unmarried couples or those not in a civil partnership.

Need more information ?

Please contact Nardia Tribe on 01702 352511 if you need further information or advice