Capital Gains Tax – what might be due if I leave the family home on separation, divorce or dissolution of my civil partnership?

Capital Gains Tax on property sales and transfers

Capital Gains Tax (CGT) is payable on any gains you make when you dispose of (for example, sell, gift or transfer) assets, which includes property.  When the property is your only, or main, residence you will not normally have to pay any CGT on sale as you will be able to claim Private Residence Relief.  Alternatively, if you transfer your property or other assets to your spouse or civil partner, this is treated as at “no gain, no loss”, so CGT will not be due.  This means that if you sell or give your share of the family home to your spouse or civil partner, no CGT will be due.

Separation

However, if you are separated, this “no gain, no loss” treatment is only available to cover transfers that are made on or before the earlier of:

1. The date on which the final order of divorce is made, and
2. The end of the third tax year after the tax year in which you left the family home.

If your property forms part of your formal separation agreement or divorce order, the “no gain, no loss” treatment is available indefinitely.  But, if the transfer is made outside of the financial settlement agreement and after the relationship has legally ended, CGT will be chargeable in full, although Private Residence Relief may be applied to reduce the gain.

Timing

Currently, higher or additional rate taxpayers pay CGT at a rate of 24% on gains on residential property.  Poorly timed transfers and sales can result in a substantial tax bill on valuable homes.  For couples contemplating separation or divorce, these time pressures and potential tax bills will, no doubt, increase their worries and may create additional tensions between them.

Conclusion

Although CGT is likely to be the tax which causes couples most concern during divorce and dissolution, there are numerous other potential tax consequences which might significantly impact the decisions a couple makes.  It is, therefore, vital that couples seek specialist tax advice in the course of, or in contemplation of, separation, including during the preparation of any pre- or post-nuptial agreements.

If you would like to talk through your situation, please complete a web enquiry form or contact Ingrid McCleave.