The Labour Party’s Autumn Budget 2024 introduced several important changes which could have significant implications for those going through asset division or sale upon divorce or separation. While for some the news better than feared, there are particular modifications to Capital Gains Tax (CGT) to be aware of.
There are two key changes to CGT, introduced by the Autumn Budget, that are likely to impact separating couples:
1. Increase in CGT Rates
The main rates of CGT changed immediately on 30 October 2024 from 10% for basic rate taxpayers, and 20% for higher and additional rate taxpayers on assets other than residential property and carried interest.
Increased CGT rates have been implemented as follows:
- for basic rate taxpayers up to 18%
- for higher earners up to 24%.
- For trustees and personal representatives, the CGT rate increases from 20%to 24%.
CGT rates on disposal of residential property remain unchanged at 18% and 24%.
For anyone in the process of agreeing asset divisions on divorce, the calculations will need to be reviewed to ensure that the division is still fair following the increase in tax liability.
2. Changes to Business Asset Disposal Relief
Currently, Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) allows individuals to pay a reduced rate of CGT at 10% on the sale of qualifying business assets, up to a lifetime allowance of £1m. The budget informed us that from 6 April 2025, this rate increases to 14% for disposals made on or after 6 April 2025, and increases further from 14% to 18% for disposals made on or after 6 April 2026.
Separating couples will need to consider the timing of a transfer or disposal of business assets more carefully. Those that are already involved in negotiations or proceedings regarding a financial settlement that includes a family business, or a business readying for sale should update business valuations or expert reports to illustrate the increase in the tax payable.
No change has been made to the transfer of matrimonial property between spouses on divorce. Separating couples still have 3 years in which to transfer the property without it attracting CGT. On the expiry of that 3 years, CGT will apply.
Key Considerations for Separating Couples:
- Timing of Asset Transfers: With potential changes to exemptions, rates, and reliefs, separating couples should carefully plan the timing of asset transfers to minimise CGT liability.
- Higher CGT Liabilities: Those with higher-value assets or business interests may face increased CGT bills due to the increased rates. Planning for this in the settlement discussions will be key and may disproportionately affect one party.
- Legal and Tax Advice: Separating couples should proactively seek expert tax advice alongside family law advice to ensure the fairness of agreements.
Changes to CGT can have a profound impact on the financial outcome of a divorce. Rayden Solicitors are specialist family lawyers and can advise on all aspects of family law, including financial division on separation or divorce, at any stage of the process. Please do not hesitate to contact us to discuss your situation in confidence.
