How does separating from my spouse affect Capital Gains Tax?
Typically married couples will be exempt from Capital Gains Tax (CGT) when they transfer (or sell) assets between themselves. This is because the disposal of assets is not treated as ‘chargeable’. The law states that the transfers between spouses are treated as neither making a gain or a loss – section 58 of the Taxation of Chargeable Gains Act 1992.
However, this exemption will be affected if you and your partner separate, even if you technically remain married. This is because the law requires you and your partner to be ‘living together’. If you and your partner have separated and no longer live together, you only have until the expiration of the tax year to use your exemption.
For example, if you and your partner cease living together in December 2019, you can make exempt transfers to one another up until 5 April 2020. After this date, (i.e the new tax year) CGT will be attracted to your transfers.
This is because the law does not require you and your partner to be together on the date of the transfer. It only requires you to have lived together as a married couple for some duration during that particular tax year.
The following tax year you will be treated as separated and the exemption no longer applies.
However, it is important to note that the sale of a family home is always exempt from CGT if it qualifies for Private Residence Relief. As long as the disposal of the property meets the criteria for the Relief, it will be unaffected by your separation.
There are many other tax considerations when parties separate and you should seek the advice of a tax specialist for specific advice.
If you would like any further information or advice in relation to relationship breakdown and the consequences of divorce, please contact our specialist family lawyers: Mark Vandaele on 01902 796930 (firstname.lastname@example.org) at our Wolverhampton office or Rachel Baker on 01384 340 580 (email@example.com) at our Cradley Heath office.