The draft Finance Bill 2022-23 https://www.gov.uk/government/publications/capital-gains-tax-transfers-of-assets-between-spouses-and-civil-partners-in-the-process-of-separating, released on 20 July, goes much further than the OTS’ recommendations.  The headlines are as follows:

1. No gain/no loss treatment extended to three years following the year of separation or date of decree absolute if earlier than 3 years
2. No gain/no loss treatment with an unlimited time frame if the assets are subject to a formal divorce agreement (s225B(2)(a) or (b)https://www.legislation.gov.uk/ukpga/1992/12/section/225B - effectively a consent or court order)
3. Where A has retained a financial interest in the property they will be able to claim PPR when the property is sold or transferred to a third party.  This replaces the current rule under s225B that PPR applies on a transfer from one party to another (that will become redundant with the unlimited time frame if an order)
4. For Mesher type arrangements where spouse A transfers to B, B resides and A does not get a share of the sale proceeds until many years later then the disposal date of that later interest for A is deemed to be the date of original transfer on a no gain/no loss basis (at present this is more complex as you may be able to claim PPR for the period of occupation by B but then have potential CGT between end of order and sale).

The consultation on the draft legislation ends on 14 September 2022.  So what does this mean for family lawyers:

1. The provisions will come into effect on or after 6 April 2023
2. Life will be far simpler with much less risk about CGT arising in the context of divorce
3. There is more parity on divorce with the other taxes – including SDLT
4. There may be some merit in waiting to do a deal if it means you can claim the no gain/no loss treatment post April 2023 – that will be completely dependent upon a number of factors.
5. Overall CGT is still an important consideration in the financial settlement – although there is not an immediate charge and cash flow issues – the transferee will still take the asset at base cost and will therefore have that to consider the CGT when they ultimately dispose of the asset(s)

The legislation is only in draft at this stage so it may change.  If it comes into effect, this is a real result for families who potentially will no longer need to go to the expense of tax reports, advice and rushing to transfer assets.