Current law

The current law states that married couples have until the end of the tax year in which they separate to transfer assets between themselves to avoid paying CGT. Once the tax year is over any transfers taking place between the couple are done at market value. This can cause issues due to the amount of time it often takes to resolve the financial issues on divorce.

Changes

The proposed changes are:

1. Extending the ‘no gain no loss’ for the whole period providing the couples are transferring assets pursuant to a court order
2. Allowing non occupying spouses of the family home to benefit from principal private residence relief on sale
3. Providing additional relief for individuals who enter into a deferred charge arrangement over the main home

Extending the ‘no gain no loss’ window to 3 years from the point of separation or for any period provided the assets are transferred pursuant to a court order

The legislation says that no CGT is payable by individuals in cases where the transfer takes place

(c) before the earlier of— (i) the last day of the third year of assessment after the year of assessment in which A and B ceased to live together, or (ii) the day on which a court grants an order or decree for A and B’s divorce, the annulment of their marriage, the dissolution or annulment of their civil partnership, their judicial separation or, as the case may be, their separation in accordance with a separation order.

Therefore, there is an unlimited period of time for couples divorcing to transfer assets between themselves providing the transfer is pursuant to a court order.

b) Allowing non occupying spouses of the family home to benefit from Principal Private Residence relief on sale

At the moment when one party moves out of the family home, if they are out for more than 9 months they will face a CGT charge when they sell or transfer the property. These new rules allow for that individual to claim PPR on the sale even for the periods that they have been absent from the home providing that the sale and absence is due to divorce.

c) Providing additional relief for individuals who enter into a deferred charge over the main home

At the moment when a party enters into a deferred charge over the main home the charge is a new asset for CGT and when the charge is paid the increase in value is subject to CGT. The new rules allow that party to claim PPR relief on that gain and thereby reduce the liability to nil. Therefore if you are keeping an interest in a family home you would no longer have to pay CGT when you receive the money at some point in the future.

Unclear areas?

The legislation is clear that from 6 April 2023 (if enacted as is) couples separating in 2023-24 will have until 5 April 2027 to transfer assets between themselves without incurring any immediate tax liability. What is slightly less clear is what is the position for couples who say separated in Feb 2022? Currently the position looks as though they had until 5 April 2022 to benefit from the ‘no gain no loss’ rules under current law but if they wait until 6 April 2023 they will then benefit from the new rules and can again transfer assets without incurring immediate CGT

A recent case should stand as a warning to those trying to settle their financial issues through the Court. There were 2 issues arising and commented on by the Judge. The first re-emphasised that deliberate non-disclosure by a party of their financial position, even if relatively minor, will be punished by costs penalties, but he has also made clear in this judgment that the parties are required to negotiate once all the facts of the case are known. This decision underlines the fact that it is absolutely crucial for reasonable offers to be made on an open basis once the financial landscape of a case is clear. Not doing so will only lead to punishment by the courts further down the line.

Under English law, pets are considered chattels. In other words, pets are considered property akin to cars, jewellery and furniture. As such, purchase and registration are often considered to weigh heavily in the determination of any dispute regarding who should keep the family pet. That is not to say that those are the only considerations. Other factors which are often referenced as being relevant include:

1. Who is the pet’s primary carer?
2. Who has contributed financially to the pet’s food and veterinary bills and how much each partner has contributed?
3. Whether there is a pre-nup, often termed a ‘pet-nup’, in place. If so what are the terms of the pet-nup?
4. What are the parties respective financial positions?
5. Will provision need to be ascribed to a pet, for example a racehorse(s)

In the first instance, it is advisable to consider a pet-nup. A pre-nup/pet-nup is something which is specifically encouraged by the Law Society. Taking such an approach would help to determine the issue via agreement before any breakdown in the relationship and avoid any heartache caused through litigating the issue. Additionally, this approach may help to save costs in divorce proceedings.

Cohabitation Agreements

What is a cohabitation agreement and how does it work? Cohabitation agreements are generally entered into between a couple who are not getting married or entering into a civil partnership. It will not affect the legal nature of their relationship. Cohabitation agreements usually concern the ownership of a property. However, don’t write it up yourself and scrawl it on a piece of paper – if you really want to protect yourself, it’s best to get a lawyer. If the document is prepared properly, and both parties have legal advice and understand what they are doing, then it is likely that they will be bound by the agreement.   At the very least it will provide powerful evidence of what the parties agreed and understood when they started living together. If one party has been untruthful or put the other under duress to sign the agreement, a cohabitation agreement entered into in those circumstances would be challengeable in court. There’s another reason for why having this conversation with your partner might be awkward: the money chat. In order for the agreement to be valid, you both have to give full financial disclosure, which means that all your cards will be laid out on the table, including any debt that you might not have opened up to your partner about yet. Be prepared and if you can, have this talk beforehand so there are no unexpected surprises.

In the case of Guest v Guest & Guest a claim was brought by a son for an interest in the family farming business where he had worked for 30 years at a reduced wage. He asserted that he had done this in reliance on assurance that his father had made and on which he said his father should not be able to renege. The son was awarded 50% of the business (after tax) and 40% of the value of the land (which were valued together at around £3.35m.

Therefore it is important not to make promises that someone may rely on to their own detriment and to be very clear what intentions are. Intentions can and do often change over time particularly when relationships go sour.