Why delaying a split could save divorcing couples a hefty tax bill

Tax rules coming into effect from April give couples more time to divide or sell assets

Couples in the middle of separating or divorcing could save themselves a major tax bill by delaying the division or sale of any shared assets by a few months, according to full service legal firm Gilson Gray.

With less than six months until the tax year ends and ‘divorce day’ approaching in January, many couples dividing up investments or property after a breakup will be feeling the pressure to transfer or sell them within the same tax year to prevent capital gains liabilities.

Under current tax legislation, spouses and civil partners can transfer assets between one another without any tax being payable. However, for couples who are splitting up, this only applies if the transfer of assets takes place in the same tax year they separate.

New rules coming into effect from April 6^th, 2023, will extend the period for transferring assets without incurring capital gains tax to three years after the end of the tax year in which they separate, and indefinitely if there is a properly drafted separation agreement in place. The extension will also bring about significant changes to the rules around selling a family home.

Under the current regime, the spouse who moves out of the house only has a nine-month window to sell their interest before capital gains tax applies to proceeds from the sale.

From next April, the partner who moves out will be able to retain an interest in the property, receive a percentage of the proceeds when it is eventually sold, and apply private residence tax relief.

Denise Laverty, partner and specialist divorce lawyer at Gilson Gray, said: “The new tax rules are designed to make the process of spouses and civil partners dividing assets between them a fairer and more flexible process. However, they only come into effect from April 6^th next year, so anyone going through this process now should take advice on whether to delay selling or transferring any assets until they come into effect.

“Under the current regime, couples with, for example, investment portfolio or buy-to-let properties held in joint names might be hit with a large tax bill for simply transferring these assets between them depending on when they separate. Waiting until April could relieve the pressure to make decisions too quickly and give them more time to fully consider how best to divide their assets.

“In other cases, and with mortgage rates rising, more couples may want to consider a deferred sale of their home and the new tax regime will not penalise the person who has moved out of their property. It will also especially help couples in more complex financial negotiations, as it means they have more time to consider their options instead of rushing decisions purely to minimise capital gains liabilities.”