Daniel Sladen, a Managing Director in our Tax Advisory team, looks at Capital Gains Tax for divorcing couples and proposed changes relating to the transferring of assets due to come into effect in April 2023.

Following the Chancellor’s announcement of some fairly major tax changes over the last few weeks, it appears that the draft legislation published earlier this year to amend the calculation of Capital Gains Tax (CGT) applied on transferring assets during separation and divorce has survived without further change and looks likely to be implemented with effect from April next year.

The current position is that a married couple/civil partners benefit from transferring assets between them at no gain no loss, meaning that no tax is payable. The receiving partner takes on the base cost of the asset from the transferring partner, and the transferring partner has no taxable gain.

Until now, the benefit fell away after the tax year of separation (ending on 5 April). This meant that couples who separated on, for example, 1 July 2021 or 1 April 2022 would have had until 5 April 2022 to transfer assets at no gain no loss. Transfers made by the separating parties after the tax year of separation (in this example, 6 April 2022 or later) are deemed to take place at market value consideration and may result in CGT being payable regardless of whether any payment is made for the assets. This includes assets transferred under a court order. 

Proposed changes

The new legislation proposes to extend the no gain no loss transfer window in two ways. 

In the absence of a court order, the transfer window ends on the earlier of: 

  • three years following the tax year of separation (e.g. separation on 1 July 2021 results in a transfer window ending on 5 April 2025); or 
  • decree nisi.

However, where the assets are transferred following a court order under financial remedy proceedings, the transfer period for no gain no loss for assets transferred pursuant to the order is unlimited. This is clearly beneficial for complex and/or contentious cases. 

There are also draft amendments to rules regarding the marital main residence, which appear to allow the exiting spouse to claim principal private residence (PPR) relief on the period where there is deferred consideration, through a Mesher order or similar scheme. 

There do not appear to be provisions preventing the changes applying to those who have already separated. The draft legislation simply states it will apply to disposals from 6 April 2023, with no restriction on when the separation occurred. Therefore anyone currently seeking a court order, or those who have separated since 6 April 2020 who have not yet received their decree nisi, may wish to hold off on transferring assets until there is any more indication as to whether this legislation will receive Royal Assent (although it is worth being aware that the controversy around recent tax proposals has led to rumours that the Finance Bill implementing the changes will not be brought before Parliament until March 2023).

Despite an unlimited transfer period, these changes are likely to result in an increase in the work required by tax advisers, rather than a decrease. Instead of simply calculating market value CGT on transfers, there may be a requirement to analyse historical spousal transfers made at no gain no loss, as assets with significant potential gains might lead to unequal future tax bills depending on who ends up holding which assets.

A practical example

A husband and wife meet in 2016, marry in 2017 and separate in January 2020. They are seeking a court order to split their assets in the divorce. 
 
The husband has a buy to let property which was his main residence prior to the marriage and which has increased in value since acquisition. He never transferred this property into joint names. The order requires him to transfer this property to the wife. 
 
Current rules
There will be a gain calculated (market value less purchase price, costs and enhancements), reduced by PPR relief for the period which the property was his main residence. The husband will suffer some CGT on transfer and the wife will take on the property at the current market value. 
 
New rules
The asset will transfer to the wife at the original base cost, and the husband will have no gain. However, based on the rules as currently drafted, the wife does not inherit the husband’s PPR claim or occupation history and therefore the PPR relief will not be available for use against her capital gain on a future sale.

Planning implications

What does this mean for the value of the asset transferred? Under the new rules, this asset is not worth as much (in terms of net realisable cash value) in the hands of the wife as it is to the husband due to the different PPR relief treatment for each party. The court should be taking this difference into account, and there is an extra element to the calculation and tax analysis compared to that which would have been undertaken previously. 
 
It is important to note that there is a consultation period during which HM Treasury may look to simplify or restrict the new tax ‘benefits’, and these changes are therefore not law until Royal Assent is received. However, divorcing parties need to be aware now that where the court order is made ahead of 6 April 2023, CGT will apply under the current legislation, not under no gain no loss. This means there is a potential for additional tax, and therefore the timing should be considered as part of the divorce process.


Following original publication of this article on quantuma.com on 12th October 2022, the article has since been re-published in the latest ‘ThoughtLeaders4 HNW Divorce Magazine’, their review of the year edition.

To read the full publication click here: HNW Divorce Magazine Issue 11 - Year in Review 2022