Thinking of Taking a Break? Moving Out? Separating?
THINK CAREFULLY
There are special rules for separating couples in relation to Capital Gains Tax (CGT) for the marital home and these have also been impacted by the 2018 Budget.
When separating, individuals have until the end of the tax year to transfer assets without any CGT or Inheritance Tax (IHT) consequences.
In the tax year following and until Decree Absolute, the former spouses or civil partners are still regarded as connected persons for CGT purposes. Therefore, all transfers will be treated as if made at full market value, even if no consideration changes hands.
Any assets transferred under Court Order on divorce will not be liable to CGT.
Principal Private Residence Relief (PPR)
Following the changes proposed in the 2018 Budget, from 6 April 2020, only the final nine months of ownership will be eligible for PPR relief on the sale or transfer of a home.
What if separation occurred in May 2020? One party moves out to rented accommodation, thereby creating a new principal private residence but not formally electing to HMRC. Parties agree to dissolve the marriage/partnership amicably, sell their home in October 2021 and split the proceeds.
For the party remaining in the property, principal private residence will be available for the whole period of ownership. The other party will have a period of eight months liable to Capital Gains Tax.
Lambert Chapman LLP work alongside Prettys on marriage dissolution agreements and review CGT positions to provide on the taxation impact.
Please contact Paul Short or Lucy Orrow for more information.