Reminder of amended property CGT rules for divorcing couples
Capital Gains Tax » July 18, 2024
In April 2023 the capital gains tax rules for divorcing couples changed. Here’s a quick recap of the new rules regarding property;
Transferring assets
Couples who are divorcing can transfer assets between them and not pay any capital gains tax. There is no tax to pay on transfer, however, the asset will move to the new owner with a latent gain. The spouse receiving the property will be responsible for paying all of capital gains tax when they sell or transfer the property.
This means that the latent gain should always be calculated so that the true value of the property is accurately recorded. For example, a property worth £350,000 now but was purchased for £200,000 has a gain of £150,000. If that property is transferred from Mr A to Mrs A, there is no tax to pay. But Mrs A will have a capital gains tax liability of £36,000 if she sold the property immediately after transfer.
Important Note: Often reliefs cannot be transferred, therefore if one party can claim relief on a sale of an asset to reduce the CGT it may not be possible for the new owner to do the same – for example main home relief.
Sale of the main home
There is a tax relief called Principal Private Residence Relief. It applies to the sale of a property that an individual has lived in as their main home. The relief is restricted if the individual has not lived in the property for the whole time they have owned the property.
If one party has moved out of the property and it is being sold, the spouse that has left the home could have a capital gains tax liability on the sale as they have not lived in the home the whole time.
This taxable gain can qualify for full relief if the individual makes an election with HMRC. This must be done within 2 years of the sale.
Important Note: An individual can generally only have one main home at a time, therefore if they have moved into another property that they own making this election would prevent them from making a PPR relief claim on the second property.
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