Whilst your Capital Gains Tax liability might be relatively simple whilst living with your spouse or partner, there are changes that come into play if you separate or divorce.
The position is firstly defined by the new state of your relationship. If the marriage or civil partnership has not broken down but the two partners do not live in the same house, you are still treated as living together for Capital Gains Tax purposes.
In fact, you and your spouse or civil partner are treated as living together unless:
- you are separated under a court order, or
- you are separated by a formal Deed of Separation executed under seal
- you are separated in such circumstances that the separation is likely to be permanent.
As well as this, if you or your spouse or civil partner were living together at some time in a tax year, you can transfer assets between you at any time in that tax year at no gain or loss, with no requirement that you should be living together at the time of transfer. If a transfer occurs between you and your spouse or civil partner after the end of the tax year in which you stop living together, there are rules to decide the date of disposal and the amount of consideration on disposal. HMRC acknowledges that the rules are complex, so analysing them closely in the company of an adviser may well be appropriate.
An example of the complexity can be found by looking at Private Residence Relief (PRR), which you may be entitled to during this period. PRR applies to any gain arising on the disposal of the only or main residence you had while living together. While you and your spouse or civil partner cannot have more than one main residence between you for the purposes of the relief at any time while you are living together, following separation, the residence which is your only or main residence for the purposes of the relief need not be the same as that which is your spouse’s or civil partner’s only or main residence for such purposes. The actual circumstances determine the PRR outcomes for both persons, within a complex set of rules applied over time by HMRC, who also advise those involved to seek professional advice.