The Office for Tax Simplification (OTS) has released proposals to that would extend the exemption from Capital Gains Tax enjoyed by divorcing couples and civil partners.
A report from the OTS proposes extend the period over which separating and divorcing spouses and civil partners can retain the inter spouse exemption when transferring assets between each other on divorce by an extra two years.
Currently the exemption is kept only for the tax year of separation. The OTS is proposing to make this two years following the tax year in which the separation has occurred.
The Divorce Dissolution and Separation Act will become law in the Autumn of 2021.
LEBC public policy director Kay Ingram says the OTS proposal gives divorcing couples more time to settle their financial affairs when splitting before they become liable to pay capital gains tax.
Ingram says: “The OTS proposal to extend the period over which married couples and civil partners can transfer assets between each other without paying capital gains tax for up to two years after the tax year of separation is welcome. However, many couples separating do not realise that separation will affect their eligibility for a number of tax concessions, CGT being just one. Exemptions from inheritance tax, and eligibility for marriage allowance and some State and private pension benefits are also lost on divorce. With the law about to speed up the divorce process to six months from start to finish*, couples need to address the financial split ahead of the legal process starting or they could be facing unexpected tax bills, loss of pension benefits and inheritance rights.”