Capital Gains Tax rules for divorcing couples are changing from April 2023. The aim is to make the rules fairer when it comes to the transfer of assets between a separating couple. The current rules pressure separating couples to make ‘no gain, no loss’ transfers of assets within the tax year of their separation. Which often adds more stress to a turbulent time.
Sadly, January sees the most significant spike in people seeking a divorce. In fact, solicitors and law firms refer to the first working Monday of the year as ‘Divorce Day’. Going through a divorce can place people of any age in a vulnerable position, emotionally and financially. But, when it comes to splitting financial assets, things can quickly turn sour. So, getting the right legal advice is important when preserving your financial security.
Balance: Wealth Planning is a proud member of the CII Financial Vulnerability Taskforce, which offers sensitive advice and support to clients going through a divorce. Let’s look at the new rules for Capital Gains Tax and divorce rules.
“Average age for divorce among opposite-sex couples is 47 years for a man and 45 years for a woman” Office for National Statistics
New rules for Capital Gains Tax
From April, the rules will affect the transfers of assets between spouses and civil partners. If you are in the process of separating, you will be “given up to three years in which to make no gain or no loss transfers of assets.” This applies from the time when you stop living together and “unlimited time if the assets are the subject of a formal divorce agreement.
These changes to Capital Gains Tax will help reduce the pressure placed on divorcing couples at an emotionally challenging time. As a result, couples can make transfers “between themselves without incurring a possible charge to Capital Gains Tax.”
There are also some special rules applying to “individuals who have maintained a financial interest in their former family home following separation” when a home is eventually sold. Again, this is more likely for those who have been married for some time. If this applies to you, please speak to our financial planning team for professional advice about Capital Gains Tax.
“Since 1990, the number of divorces for the over-60s has risen to 59% for men and 74% for women.” Office for National Statistics
New rules for divorce
Along with the changes to rules for Capital Gains Tax, some other new rules for divorce came into force last April. For example, couples can now either make a single or joint application for a divorce, and spouses can no longer contest a divorce.
The new ‘No-fault Divorce’ aims to make it easier for couples to get a divorce, minimising confrontation and the impact on children. This new legislation should also make it easier for people to leave abusive marriages. Since the new divorce rules, there has been a record high of divorce applications.
“33,234 divorce applications were made from April – June ‘22” The Law Society
One form of domestic abuse is Economic Abuse, where someone controls a partner’s money and finances. When couples are separating, sometimes people can experience this type of abuse. This could include hiding assets or refusing consent to the sale of joint property. With regards to Capital Gains Tax, this can make things very complicated.
What do you need to consider when divorcing?
During the divorce process, you will need to disclose your financial assets. A mediation process can take place to help you negotiate how to divide your assets and any shared property with your partner, along with child arrangements. Your solicitor will draw up a financial agreement. The Court will decide on your behalf if you cannot agree.
“On average, divorced women retire with savings of £77,400 less than men.”
Pensions Policy Institute, Understanding the Gender Pensions Gap, July 2019.
It’s common for women to lose out during divorce negotiations. Although often entitled to claim part of their ex-partner’s pension, many women waive their right to share. In addition, as many women leave work for a period to care for children, state pension contributions can also fall behind. If you’re a woman aged over 40 and you’re considering getting a divorce, it’s important to seek professional advice for greater financial security on settlement.
“31% of women in their 60s said they’d waive rights to their partner’s pension” Legal & General
Getting a divorce or applying for the dissolution of a civil partnership is an incredibly stressful time for everyone concerned, especially when children are involved. Always seek legal advice before making an application, and always ensure you have a financial plan. Our experienced team of financial planning professionals provide sensitive and empathetic advice to ensure your financial assets are protected.
If you’re getting a divorce and you would benefit from tax advice and a financial plan, get in touch to speak to our financial planners.
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