Globally Speaking | September 27, 2022

Finance Bill 2022/23 – a Private Client Perspective

The UK’s Finance Bill 2022/23 was published in draft on 20 July 2022. It was, as predicted, relatively light on measures affecting private clients. Consultation responses on the draft legislation were invited until 14 September 2022 with a view to introducing legislation in the Autumn 2022 Budget.

The principal item of interest for private clients is the proposed extension of the capital gains tax (“CGT”) relief for separating and divorcing couples. Currently, this relief allows transfers between spouses and civil partners to arise on a “no gain no loss” basis where they are made in the UK tax year of legal separation and before finalisation of divorce.  In effect, the disposal between the parties for CGT purposes of an asset standing at a capital gain would not be treated as taking place at market value. The recipient spouse (or civil partner) would acquire the asset at the transferring spouse or civil partner’s original acquisition cost. This is a very useful, valuable relief, and one which it is important not to miss out on if an unforeseen or unexpected CGT charge is to be avoided. By extension, where a couple divorce and one party moves out of the matrimonial home there would otherwise be a potential CGT charge on the transfer of the home, but the relief could apply after the usual nine-month limit in certain circumstances. 

Under the draft legislation, the rules would be relaxed so that the period for the availability of the relief would be extended. It is proposed that transfers of assets on or after 6 April 2023 between spouses and civil partners who have separated will be on a “no gain no loss” basis for up to three tax years after the tax year of separation and divorce, or irrespective of timing where the transfer is made as part of a formal divorce agreement. There will also be an option for a spouse who moves out of the family home to claim CGT main residence relief on the eventual sale of that property.  

This is potentially important to our UK tax resident clients and those who are non-UK tax resident but who own residential property here. 

The object of the change, which was recommended by the Office of Tax Simplification in 2021, is to give couples more time to reach a financial settlement, and transfer assets between themselves without incurring a CGT charge.