Capital gains tax and divorce
Written by Ray Coman
Transfers between spouses continue on a no loss/ no gain basis in the tax year of separation. Thereafter, transfers before divorce or under a divorce settlement are treated as occurring at market value. Spouses are no longer connected after decree absolute, and therefore any transfers would be made for consideration or as if at arm's length.
Where there is a chargeable gain arises on an unlisted share, or partnership share or other business asset, it is possible to jointly elect with a spouse for 'gift relief' to apply.
As no actual consideration is deemed to have been transferred under a court order, any gift will not be restricted by consideration received. Otherwise, any property transferred between the estranged couple would be a deemed consideration in calculating the amount of gift relief to apply. Where one spouse transfers considerably more to the other, gratuitous intent is easier to demonstrate for the purpose of claiming gift relief. For gift relief to apply, the assets transferred must be either used in your partnership, or shares of an unlisted, trading company (such as AIM shares).
Certain property is not subject to capital gains tax regardless of whether the parties are connected and the most common include a taxpayer's home, pension, personal chattels up to £6,000 in value and cars including classic cars.
Separation and divorce usually creates considerable upheaval in the re-arrangement of assets. It is advisable to assess the tax consequences, and Coman & Co would be pleased to assist with this requirement.