tax on property transfer during a divorce

Tax Implications of Property Transfers During a Divorce

23/09/2022Tax Issues , Tax Saving Tips

Are you going through the procedure of divorce or separation? The most important thing that you must be aware of is a tax on property transfers during a divorce. It depends a lot on the time and circumstances in which you are proceeding with the formal steps of the divorce because this will decide some of the tax exemptions. This is because of the fact that some of the tax amounts are only off during the same year of the divorce. Once this tax year is over, you will no longer be able to get such benefits. While you are being careful about the transfer of properties, consider stamp duty land tax (SDLT), and capital gains tax (CGT) as well.

If you are still wondering how CGT will work for you, we have got you covered here. As this guide will help you to develop a better understanding of how will CGT work for you, what is the tax on property transfer during a divorce, how can you avoid CGT when going through divorce proceedings, and how will HMRC decide the date of property transfer?


Seek no further help after contacting CruseBurke’s team of experts and advisors about tax on property transfer during divorce with peace of mind and within your budget.


Capital Gains Tax – What is it?

There is a possibility of rising the capital gains tax in the case the value of the asset has increased at the point of sale. This sometimes increases to an extent that is even higher than the original value of the asset. The basic requirement of paying the CGT is when you are selling your main residence. However, this can work out to be different for you during the process of a divorce or separation.

When you are an individual who is married or living in a civil partnership, you can transfer the property from one another without having to pay any CGT. Moreover, it depends on the type of property that is being disposed off and the level of income you are earning that will decide the liabilities of capital gains tax. You will be liable to pay the CGT when you are selling your main home and the rate will be:

  •  18% if you are a taxpayer with the basic rates.
  • On the other hand, if you are a higher taxpayer the rate will be 28% for you.

If the property that you are selling is not your main home but an office building or any other land, you will be liable to pay CGT as the following:

  • If you are a basic rate taxpayer, you will pay 10%.
  • If you are a higher-rate taxpayer, you will pay 20%.


Tax on Property Transfer During a Divorce

Several people confuse the fact of transferring the property during a divorce proceeding by thinking that is not possible. This is not the case at all. You can transfer the property during this process, however, you need to pay attention and consider the right timings of doing it before the same tax year ends of the divorce proceedings.

There is no CGT payable when you are transferring the main home during a normal marriage. However, you need to be aware of the fact that if you transfer the property after divorce in a different tax year, this will make you liable for paying CGT. If you consider the right timing and transfer the property in the same tax year when the separation or the divorce happened, it will be a no gain no loss process for you.


Ways to Avoid Capital Gains Tax During Divorce Proceedings

People are interested in avoiding CGT while transferring the property after the separation or the divorce from the spouse or civil partner. The only way to make it possible is to consider the right timing and do transfer the property in the same tax year of the divorce occurred. However, from the tax year 2023-24, the civil partners and the spouses will have a period of three years to do the process of property transfer at the benefit of no gain no loss. This means they will not pay any CGT and will have a longer period to transfer the property.


The Time to Transfer the Property by HMRC

When you are in the divorce proceedings, consider the following for the liability of CGT:

  • Express it in the divorce through a court order.
  • Express it in the agreement of the separation.
  • Do it when the separation is in permanent circumstances.

Moreover, when you are done with the process of deciding the date of separation or divorce, the market value of the property will be considered for the purpose of transfer of property. The date of the divorce or separation matters a lot in this case. If done in the same tax year, it will be a no gain no loss process as discussed earlier.


The Bottom Line

Now that you have gathered a fair amount of information about tax on property transfer during a divorce, we can bring the discussion towards wrapping up. Separations and divorce proceedings are considered to be a harsh experience for two people who are married or living in a civil partnership. However, to make it a less burdening process, you can take wide decisions to avoid paying the CGT on the property transfer. It is therefore suggested to choose the time wisely and do the pretty transfer in the same tax year of the divorce to make it a no loss no gain process.


Are you stressed about tax on property transfers during a divorce? Feel free to contact our team of tax advisors and accountants to help you find accurate information and guidance.


Disclaimer: All the information provided in this article on tax on property transfer during a divorce, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.

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