To add further confusion to the position, the rules for inheritance tax are different, and spouses and civil partners are treated as such until their divorce is finalised, even if they are no longer living together – that is, there is generally no IHT due on a transfer of assets before divorce, irrespective of the timing of the transfer.
As we head towards the spring Budget on March 15 there is scope for this legislation to be included in a spring finance bill. Although, this is unlikely to be passed before April 6 2023, so the effective date of the new rules may well change.
While this new legislation will not exactly equalise the position for CGT and IHT, it is a welcome change as it will reduce the potential for tax-related headaches at a time that is already stressful enough.
In most cases, where divorce and the financial settlement are completed within the three tax years following the year of separation, the CGT and IHT position will be consistent, allowing couples to separate their finances without having to worry about tax charges.
Sara Bonavia is associate director at RSM UK
