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BLOG: Why tax changes are good news for divorcing couples

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Under current tax rules 6 April is the optimal separation date for divorcing couples. How can there even be such a date? Sean Cockburn, tax director at Mazars, explains.

The date allows nearly a whole 12 months for divorcing couples or civil partners to agree, divide and move assets between themselves without being liable for capital gains tax (CGT).

That’s because the tax system gives divorcing couples or civil partners until the end of the tax year in which they separate to move assets between each other without having to pay CGT. But this can leave couples who separate in March with a matter of weeks or even just days to agree and move their assets.

For most people going through a divorce, tax planning isn’t top of the list with more urgent matters of who is going to live where and what’s best for the children coming before anything else. It can often add a looming time pressure, and for many a nasty twist, at what can be a time of significant emotional upheaval. Often, couples are not able to transfer assets in the set timeframe, and there is a tax charge on transfers made subsequently.

More modern thinking on tax

Now, the government is planning on bringing in new legislation on chargeable gains that gives people more time to organise their affairs without being liable for tax charges.

It is good news. The change follows recommendations from the Office of Tax Simplification in their 2021 report on CGT where they noted “it is unrealistic to expect separating couples to have resolved their affairs by the end of the tax year of their separation“ and helps align the tax system with the realities of modern-day life.

While the new legislation is still in draft, if all goes ahead as expected divorcing couples and civil partners will have up to three years following separation, or an unlimited period where transfers are subject to a formal divorce agreement, to transfer assets such a property, shares, or businesses between themselves in what is known as the ‘no gain, no loss’ window.

It’s expected this will be introduced in the Finance Bill 2022-23 and come into effect from 6 April 2023.

Thousands of divorcees will benefit

The impact can’t be underestimated. In 2020, there were 103,592 divorces granted in England and Wales which means hundreds of thousands of people are likely to feel the benefit of this change from next year.

Once people have decided to divorce, no matter how amicable it is, there are agreements that need to be made on many aspects of daily life, including the finances.

The incoming changes will really benefit those involved in complex divorces, as it will allow for more time to be spent on the divorce considerations, rather than trying to beat the capital gains tax window.

This is a particularly positive move and one that shows a commitment from the government to create a more common sense tax system.

Sean Cockburn is tax director at Mazars