Capital Gains Tax Change for Divorcing Couples

A proposed capital gains tax change which was not mentioned in the chancellor’s speech may increase tension between couples going through divorce proceedings.

This potential tax change comes at a time when the government is thought to be looking favourably at implementing a new “no-fault” based divorce. Currently, to get a divorce it must be shown that the marriage has broken down irretrievably and this is to be proved on one of five facts: adultery, desertion, behaviour or after waiting until there have been two years of separation with consent or five years without consent.

At a time when the government is supporting plans for a no-fault based divorce, the proposed measure imposes a capital gains tax bill for those who have moved out of their home following the breakdown of their marriage if they do not sell the former matrimonial home within 9 months. Under the current rules, couples have 18 months to sell their home before being liable for a capital gains tax charge. This new measure is due to come into effect in April 2020.

For many couples, 9 months will not be enough time to settle legal and financial aspects of their divorce, particularly where there are delays in the court or where a case goes to trial. This may encourage couples to stay together in the family home, adding to tension and possibly leading to more eviction orders. This will also for many families have a negative impact on the children.

Further, the property market slowdown means a number of family houses are left unsold for long periods of time. Therefore, giving couples only 9 months to sell their family home is less than generous.

There is also potential for double-taxation for those who have left the family home and bought another property, if the property does not sell within 9 months and within this time a new property is purchased that individual will not only be hit with a capital gains tax bill but also a 3% second-home stamp duty surcharge.

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.

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