When spouses or civil partners are living together they are both treated as separate individuals for Capital Gains Tax (CGT) purposes. However, assets can be transferred between them free of CGT. This means that when a couple are together there is no CGT payable on assets gifted or sold to their spouse or civil partner.
There are different CGT rules that apply to a married couple that are divorced or to civil partners whose civil partnership is dissolved. These rules can also apply to couples after separation. In short, where a couple are no longer living together, then the transfer of an asset between them is usually treated in the normal way, i.e. as taking place at current market value. There is an exception for couples that remain together but are living separately for other reasons.
Planning note
For CGT purposes, ex-couples can treat the year of their permanent separation as if they were still together. Therefore, the optimum time for a couple to separate would technically be at the start of the tax year. This would allow the ex-couple up to a year to plan how to split their assets in the most tax efficient way. Whilst tax concerns may be low on their list of priorities, careful planning can help couples reduce tax costs and ensure the most tax-efficient split of any joint assets.
The couple should also give proper thought to what will happen to the family home, any family businesses as well as the inheritance tax implications of separation and / or divorce. It is also important to try and make a financial agreement that is agreeable to both parties. If no agreement can be reached, a court approved ‘financial order’ may be required.