Rishi Sunak requested that the OTS review the CGT system in mid-2020 and the corresponding report was split into two parts. The second report was released today and 14 recommendations were made.
These proposals were welcomed by Kay Ingram, the Public Policy Director at LEBC, but she warned oncoming legislation may render the benefits moot.
She said: “The OTS proposal to extend the period over which married couples and civil partners can transfer assets between each other without paying capital gains tax for up to two years after the tax year of separation is welcome.
“However, many couples separating do not realise that separation will affect their eligibility for a number of tax concessions, CGT being just one.
“Exemptions from inheritance tax, and eligibility for marriage allowance and some state and private pension benefits are also lost on divorce.
“With the law about to speed up the divorce process to six months from start to finish, couples need to address the financial split ahead of the legal process starting or they could be facing unexpected tax bills, loss of pension benefits and inheritance rights.”
The specific legislation Kay referenced was the Divorce Dissolution and Separation Act.
This act is set to become law in the Autumn of 2021.
According to the Government, should a person get divorced, the court(s) can consider their state pension, or part of it, a financial asset, which could in turn be shared in a financial settlement.
Additionally, according to Pension Wise, when a marriage or civil partnership ends, courts deal with the private pension arrangements in one of three ways:
- People are given a percentage share of their former partner’s pension pot – known as pension sharing
- The value of a pension(s) is offset against other assets – known as pension offsetting
- Portions of a pension is paid to former partners – known as pension earmarking