Capital Gain Tax: Change to the Principal Private Residence Exemption rule
For many couples a divorce involves the sale of their family home. Recent changes to the capital gains tax (CGT) rules mean divorcing or separating couples in the UK now have a shorter period of time in which to sell their interest in the family home without being hit by a CGT charge.
From 6 April 2020, the spouse who moves out of the family home only has a nine month time period in which to sell their interest in the house before CGT applies to the proceeds of sale. Previously the time period was eighteen months.
This means that many divorcing couples have to make a tricky decision - should they stay living together under one roof after separation which, obviously, can bring additional tension and acrimony, or, should they accept the reality of a future CGT bill which will add to the other costs they face in dividing their joint finances and setting up two new households.
Consequently, anyone contemplating separation or divorce should seek advice before moving out of their family home and think carefully about the CGT implications. As the nine month period runs with the tax year, the date in the tax year when a spouse moves out of the family home may allow for up to a further three months before the nine month period begins to run, so that provides a maximum of one year before the CGT charge kicks in. It is therefore important to get advice at the outset so that any CGT can be mitigated.