Capital Gains Tax on divorce

When spouses or civil partners separate, they often need to transfer assets between them. Normally, transferring assets leads to a capital gains tax charge if the asset has increased in value since it was first acquired.

However, a tax rule called 'no gain/no loss' treatment means that when assets are transferred between separating spouses or civil partners, they don't have to pay tax on any increase in the asset's value at the time of transfer. Essentially, it's as if the asset is transferred at its original value, so there's no taxable gain.

Since 6 April 2023 the transfer of assets between spouses and civil partners who are in the process of separating and are no longer living together benefits from the no gain / no loss treatment for a longer period.

A surprise update to HMRC’s technical guidance in April 2025, subsequently reversed in May 2025, demonstrates the need for separating couples to get expert current tax advice during the divorce process to make sure that there are no tax surprises.

Divorce and Capital Gains Tax rules since 6 April 2023

For disposals on or after 6 April 2023, the separating spouses or civil partners will be given:

• Up to 3 years, after the year of separation, to make no gain no loss transfer of assets.
• Unlimited time to transfer assets when they are subject of a formal divorce agreement.
• A spouse or civil partner who retains an interest in the former matrimonial home will have the option to claim Private Residence Relief when it is sold. Individuals who have transferred their interest in the former matrimonial home to their ex-spouse or civil partner, and are entitled to receive a percentage of the proceeds when that home is eventually sold, will be able to apply the same tax treatment on the receipt of those proceeds that applied when they transferred their original interest in the home to their ex-spouse or civil partner.

Planning financial settlements tax-efficiently

The extended no gain / no loss treatment provides valuable time for spouses and civil partners in the process of separating to organise their financial affairs without unwelcome Capital Gains Tax (CGT) liabilities.

• It is easier to transfer assets without the risk of a “dry tax charge” arising (ie where there are no cash proceeds).
• It should remove the complexities around establishing the date of disposal for separating couples.
• It can remove the complications of whether CGT holdover relief is available on a transfer of assets after the year of permanent separation, between a separating couple.

Tax complexities for separating couples

Separating couples should consider the tax consequences of their proposed financial settlement if they are considering other asset disposals, including in the following scenarios.

CGT may still arise if cash is required as part of the separation, so you will need to proactively consider the implications and reliefs available where there are disposals of an asset to a third party, or where it is difficult to agree the future ownership of the asset.

The UK no gain/no loss rules do not apply where any overseas assets trigger tax issues in the local jurisdiction – so tax could still arise on a transfer of an asset between a couple, depending on where it is situated.

The extension of the no gain/no loss provisions means that it is unlikely that transferors will be able to benefit from any CGT reliefs to which they are usually entitled, i.e. capital losses or Business Asset Disposal Relief, because the transferred asset is treated as disposed of at its original acquisition value. 

For example, if both parties hold shares in the family business, where one party is required to transfer all their shares to the other on a nil gain/nil loss basis, this may still create problems. Say the value of each party’s shares is currently £2m each and both meet the qualifying conditions for BADR - meaning that both can utilise their £1m lifetime BADR limits on a transfer/sale at market value. However, once all of the shares are with one party, it will only be possible to utilise one £1m lifetime BADR limit on a future disposal – based on current CGT rates and rules that could increase the overall tax due by £100,000 on a future disposal.

Equally, following no-gain-no-loss transfers, the recipient acquires the asset at its original acquisition value, so this may trigger a significant tax charge if they later choose to sell it.

For example, a husband and wife own a property portfolio jointly and it has been agreed, upon divorce, the husband will be the sole owner of a property worth £500,0000 which was originally acquired for £100,000, and the wife will be the sole owner of a property worth £500,000 with an acquisition cost of £300,000. If all things remain equal, on a future sale of the properties the husband will have a larger capital gains tax liability due to the lower acquisition cost – so it is important to calculate the prospective after tax values of assets so they can be taken into account in any settlement. These rules do not extend to income tax, so any dividends or bonuses taken from the family company (often used to fund a settlement) may still trigger liabilities.

Expert tax advice for divorce

When considering the financial order and the split of assets in a separation, it is vital to consider the tax position of the couple in detail, because tax can still reduce the total value of the assets to be divided between the parties. In most circumstances, it will be important to understand any latent capital gains within the assets to ensure there is an equitable split of value.

If you have any questions regarding any of the tax issues affecting separating couples, please do not hesitate to get in touch with Tim Lynch and Lisa Davis.