CGT on Divorce & Separation

The General Rule: Married Couples & Civil Partners

While spouses or civil partners are living together, any transfer of assets between them is treated on a “no gain no loss” basis for CGT purposes. This means:^[1]

• No CGT is charged on the transfer
• The receiving spouse is treated as having acquired the asset for the same base cost as the transferring spouse
• Any gain is deferred until the receiving spouse eventually disposes of the asset to a third party

This applies to all types of chargeable assets — property, shares, business assets, crypto, and any other chargeable asset. It also applies to civil partners on the same basis as married couples.

The 2023 Rule Changes

From 6 April 2023, the government significantly extended the time available for separating spouses to make CGT-free transfers. The new rules provide two windows:^[3]

Window 1: Up to 3 Years After Separation

Separating spouses can make no gain/no loss transfers for up to 3 years after the end of the tax year in which they ceased living together. This gives a minimum of 3 years and a maximum of nearly 4 years, depending on when in the tax year the separation occurs.

Window 2: Formal Divorce Settlement (No Time Limit)

Assets transferred between former spouses or civil partners as part of a formal divorce or dissolution settlement are treated on a no gain/no loss basis, regardless of when the transfer takes place. This applies even if the transfer occurs many years after separation, provided it is made pursuant to a court order or formal agreement.

What Happens Outside the Window?

If an asset is transferred between separated spouses outside both windows (more than 3 years after separation and not as part of a formal divorce settlement), the transfer is treated as a disposal at market value. This means:

• The transferring spouse is treated as having sold the asset for its market value on the date of transfer
• CGT is charged on any gain (market value minus original base cost)
• The receiving spouse acquires the asset at market value (which becomes their base cost)

The Family Home and Private Residence Relief

The family home receives special treatment on divorce and separation. Private Residence Relief (PRR) can continue to apply even after one spouse has moved out:^[2]

The Final Period Exemption

When you move out of a property that has been your main residence, the final 9 months of ownership are always exempt from CGT (the “final period” exemption). This applies regardless of whether you are living in the property during that period.

Extended PRR for Divorcing Couples (from April 2023)

The 2023 rule changes also enhanced PRR for separating spouses. A spouse who has left the family home can claim PRR as if they were still living there if:^[3]

• The property continues to be the main residence of the other spouse or civil partner
• The transfer is made under a formal divorce or dissolution settlement

This means a departing spouse does not lose PRR simply because they moved out, provided the other spouse continues to live there and the property is eventually transferred as part of the settlement.

Example

David and Sarah bought their family home in 2010 for £200,000. They separated in April 2025. David moved out while Sarah continued living there. In April 2026, the home is transferred to Sarah as part of their divorce settlement. The home is now worth £400,000.

Deferred Consideration and Earn-Outs

In some divorce settlements, assets are not transferred immediately but are subject to deferred payments or earn-out arrangements. For CGT purposes:

• If the settlement specifies a fixed amount payable later, the full amount is typically treated as the disposal proceeds at the date of the agreement
• If the amount is uncertain (contingent on future events), the Marren v Ingles principle may apply, creating a separate CGT event when the deferred consideration is received
• The no gain/no loss treatment applies to the initial transfer if it falls within the qualifying windows

Court Orders and Consent Orders

Where a court orders the transfer of assets as part of divorce proceedings, the transfer is treated as being made in connection with the divorce settlement. This qualifies for the no gain/no loss treatment regardless of timing.^[4]

Common scenarios include:

• Property transfer orders: The family home (or other property) is transferred from one spouse to the other
• Pension sharing orders: These are generally outside the CGT regime (pensions have their own tax treatment)
• Lump sum orders: Where a lump sum is paid from the sale proceeds of an asset, the disposal is at market value but the no gain/no loss rules apply to the underlying transfer between spouses

Practical Tips for Separating Couples

• Take advice early: Understanding the CGT position of each asset helps inform settlement negotiations
• Consider the base cost: The receiving spouse inherits the original base cost — transferring a highly appreciated asset means they will face a larger CGT bill on eventual sale
• Main residence nomination: If you own more than one property, consider which property should be nominated as the main residence for PRR
• Use the AEA: Each spouse has their own £3,000 Annual Exempt Amount — timing disposals across two tax years can maximise the available relief
• Formalise the settlement: Transfers made under a formal divorce settlement have no time limit for the no gain/no loss treatment — ensure your solicitor documents the settlement properly

Further Reading

• Private Residence Relief (PRR) — how your main home is exempt from CGT
• Selling a Second Home — CGT on additional properties, including nominations
• Annual Exempt Amount — the £3,000 tax-free threshold
• How to Calculate a Capital Gain — the full computation process