Proposal to extend Capital Gains Tax deadline for divorces

A report published by the Office of Tax Simplification (OTS) has recommended extending the deadline by which divorcing couples are able to claim spousal exemption on Capital Gains Tax when dividing their assets.

Married couples or civil partners can transfer assets between them without triggering an immediate Capital Gains Tax charge.  Divorcing or separating couples continue to benefit from this rule in the tax year in which they separate.  However, after that, transfers take place at market value in accordance with the normal Capital Gains Tax rules.

In 2020 it took an average of a year to secure a divorce in England and Wales.  The report found that many people consider that limiting the tax rule about these transfers to the tax year of separation gives couples inadequate time to reorder their affairs.

The OTS recommends that the government extend the operation of this rule to the later of:

• the end of the tax year at least two years after the separation event, and
• any reasonable time set for the transfer of assets in accordance with a financial agreement approved by a court or equivalent processes in Scotland

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