The Chancellor confirmed in his Spring Budget that capital gains tax rules will change for this tax year so that divorcing couples will have three years after the tax year of separation to redistribute their assets to make a no gain/ no loss basis.

Until now, divorcing couples have had a very limited window in which they could transfer assets between themselves without crystallising a capital gains tax liability. Couples could only transfer assets “pregnant” with any accumulated CGT during the tax year in which they separated. If they separated during the last months of the tax year, therefore, it was almost inevitable that this could not be organised in time. This could lead difficulties when the asset was transferred if the parties didn’t have the available cash to pay the immediate tax liability and, in the worst case scenario, would have to sell the asset rather than transfer it between them.

The new rules (which have not, in fact, been given final sign-off by Parliament even though the new tax year has now started) should give divorcing couples much more time to make proper arrangements for their assets, and this ought to be a good thing.

One thing that recipients need to be mindful of, however, is the increased likelihood that they will be receiving a future CGT liability along with any asset they receive. It is tempting to assume that the base value of the asset is what it was worth when they received it, but in fact such assets will be assessed against the capital gain since their spouse purchased the property however many years before. They need to be aware of this when they come to sell the asset themselves, and remember to think about the net value of the asset when considering the fairness of any proposed financial distribution.