As I write, it is nine months since the implementation of changes to the divorce and dissolution taxation rules (April 2023); rules which were designed to simplify the divorce process and achieve fairness and clarity.

‍What are the real world impacts of the rule changes? 

Overall a welcome change, but at Sanctoras we are not particularly seeing any direct impacts as yet - though these impacts may not be borne out until cases progress beyond a year.

Broadly, the feeling is that the changes will have widespread benefit for the more simple cases, but are unlikely to make significant differences to already stressful proceedings in the complex, multi-jurisdictional cases we tend to be instructed in. Unfortunately, the changes to the rules have certainly not solved the issues around working out complex tax issues at the start of the divorce process and throughout negotiations, which are critical to assisting the parties, their lawyers and the court in reaching a final settlement.

Potentially, we may see more activity regarding the Capital Gains Tax changes after 6 April, as by that time couples who separated in the previous tax year should feel the direct benefit of not having quite so much time pressure to transfer assets - though no doubt most parties will still want to conclude proceedings as soon as possible to move on with their lives.

A reminder of the key changes which came in in April 2023:

• Potentially indefinite deadline

Under the new rules from 6 April 2023, transfers of assets between separating spouses or civil partners are now treated as "no gain/no loss" transfers for CGT purposes for an indefinite period, provided the transfers are made pursuant to a formal divorce agreement (including an Order made by consent). This means that the transfer is deemed to occur at the original cost of the asset, thereby deferring any CGT liability until a future disposal.

• The ‘three-year’ rule

The changes allow transfers made between the parties other than under a Court Order until the end of the tax year three years following separation. A couple who separated on 1 May 2023 will therefore now have until 5 April 2027 to benefit from the no gain/no loss transfer provisions (in effect, almost four years since the actual date of separation).

This three-year period, however, will end if the Court pronounces decree absolute or issues a final order. Any subsequent assets being transferred between the parties would therefore need to be included in the formal court-approved agreement to continue to benefit from tax-neutrality.

• Accurate record-keeping

It is crucial to emphasise the importance of maintaining accurate records of all asset transfers, including the original cost and acquisition dates. This information will be vital for future CGT calculations when the assets are eventually disposed of.

Check out our previous article detailing the taxation changes.

‍High value, international or complex divorce cases

No matter which taxation specialist you or your team choose, it is vital that this specialist collaborates closely with the multidisciplinary team involved in your divorce. Professionals such as family law solicitors, financial planners, should be in regular contact to ensure an holistic and comprehensive approach to the parties’ financial well-being.

This is particularly relevant in international, high-value or otherwise complex cases, where specialist advice - often across jurisdictional borders - is paramount. We urge clients to obtain advice at the earliest stage, as whilst there has been some relaxation and simplification matters can still turn out to be rather complex. 

Recent complex cases at Sanctoras: 

• Discovering the true value of assets in high value divorce
• Highlighting historical tax inaccuracies
• Avoiding confrontation by working with both parties
• Applying UK tax law to overseas divorces
• Coordinating complex cross-border advice across England, US, South America and Spain

Need specialist guidance?

Please contact me, James Heathcote to discuss your own specific circumstances - or those of your client - in confidence. If you would like to understand more about my professional CV relating to divorce, I will be happy to share this with you.

Not ready to reach out to us?

Please take a look at the Separation and Divorce pages of our website.