Capital Gains: Law Society and Resolution say cases show asset transfers laws are unrealistic

The Law Society and family lawyers' group Resolution have called on practitioners to help out in their campaign to persuade Revenue & Customs to change the tax rules on asset transfers between husband and wife or between civil partners when they separate or divorce.


Under the current rules, a husband and wife are able to transfer assets between them without crystallising any tax liability, provided they are still co-habiting.


Where they separate permanently, the no gain/no loss rule continues but only in relation to transfers made during the tax year of separation. Transfers at a later date may be subject to a capital gains tax charge if the asset has gained in value.


However, both the Society and Resolution argue that the current rules do not reflect the reality of the time taken to complete a divorce settlement. This means that the tax year of separation may well have passed by the time decisions on transfers are reached - especially if separation occurs late in the tax year. Alternatively, the rule may cause couples to rush into settlements.


They argue that the House of Lords decision in White v White demonstrates that the courts will be looking to order more substantial transfers of property in future to ensure greater equality between former spouses. They also suggest that the growth in 'buy to let' investment will increase the number of property orders the courts have to make.


The issue is likely to become more pressing with the first civil partnerships being remathewgistered last month.


David Salter, chairman of Resolution's property tax and pensions committee, said: 'We believe that the no gain/no loss rule in its current format is seriously outdated and does not reflect current divorce procedure, and in consequence is capable of causing serious injustice in a number of cases.'


The Revenue has said it is prepared to look again at the issue but requires evidence if it is to recommend a change to ministers.


For details of the information the Law Society needs, visit the tax law page on www.lawsociety.org.uk. Practitioners can also contact Louise Speke at the Law Society or by e-mail: CGTinfo@lawsociety.org.uk.