CGT Liability on Divorce, Dissolution and Separation

Jennifer Allen, Director specialising in Family Law provides her expert advice on matters relating to Tax considerations on Divorce / Separation, which is of particular relevance to couples separating within this tax year.

Capital Gains Tax (“GCT”) is unlikely to be the first thing you think about when considering separation.  Nevertheless, when separating, CGT can have implications when transferring assets as part of any settlement. Like everyone else, spouses/civil partners are treated as separate individuals for CGT purposes, but although taxed separately, spouses/civil partners may be treated as “connected” with each other for certain purposes. 

If spouses or civil partners (but not cohabitees’) are living together, any transfers of assets between them are not treated as giving rise to a chargeable gain/allowable loss.  If a spouse/civil partner separate and are not living together then an asset transferred will be considered at its market value at the time of transfer and may be subject to a chargeable gain / loss.

Married/civil partnership couples are deemed to be living together for CGT purposes if they are still in a relationship, whether or not they are physically in the same household unless there is a Court Order or formal Deed of Separation, for example.

When separation has occurred, provided that assets are transferred within the same tax year as separation, such transfers between one another may be done without incurring a gain or loss.  Such transfers are treated as if they were still living together.  Once a new tax year occurs and the married or civil partnership couple have stopped living together, there are rules to decide whether CGT will become due.  There are certain assets which will not incur CGT in any case such as personal car, personal possessions worth less than £6,000 each, etc.  However, assets such as the transferring of shares; or a business; or non-personal or inherited possessions like antiques; or holiday home or investment property; and such like may attract CGT.  

Private Residence Relief applies to transfers of the matrimonial home from one member of the former marriage or civil partnership to the other.  For this relief to apply the residence must have been their only or main residence whilst they were living together.  However, if one party to the relationship did move out, the transfer to the other must take place within 3 years for the full relief to apply.

If you are contemplating separation it is advisable to obtain expert legal and tax advice prior to transfer of any assets to ensure you are not struck by unexpected tax liability.  Please contact Jennifer Allen for further advice on 01242 574244 or email