Capital Gains Tax and Divorce UK 2026/27 | CGT on Marital Assets

The Key Rule: Tax Year of Separation

The CGT treatment of asset transfers between spouses and civil partners depends critically on timing. While a couple are living together (treated as living together for tax purposes), any transfer of assets between them happens at no gain and no loss, effectively at the original cost, so no CGT arises. This exemption continues until the end of the tax year (5 April) in which the couple permanently separated.

From 6 April of the tax year after separation, the no-gain no-loss rule no longer applies to new transfers. Any asset transferred from one spouse to the other from that point is treated as a disposal at market value for CGT purposes. If the asset has risen in value since it was acquired, the transferring spouse may have a CGT liability. This rule creates a time pressure: couples who separate late in a tax year have very little time to complete asset transfers under the old beneficial rules.

For divorces completing from 6 April 2023 onwards, the rules changed significantly. Under the Divorce, Dissolution and Separation Act 2020 reforms to CGT (effective April 2023), the no-gain no-loss window was extended. Separating spouses now have up to three years from the end of the tax year of separation to transfer assets under no-gain no-loss. For assets transferred as part of a formal divorce settlement (court order), there is no time limit, the no-gain no-loss treatment applies regardless of how long after separation the transfer occurs.

The Former Marital Home, Private Residence Relief

The former matrimonial home is often the most valuable asset in a divorce. If the property was the main residence of both spouses throughout ownership, Private Residence Relief (PRR) normally exempts the gain in full. The final 9 months of ownership also count as a period of main residence, even if the departing spouse has already moved out.

Problems arise when the gap between leaving the property and completing the sale exceeds 9 months. If you moved out 18 months before the sale completed, only the last 9 months are protected by the final-period rule, the 9-month gap before that is potentially chargeable. For divorces involving a lengthy sale process, this can create unexpected CGT for the departing spouse.

From April 2020, a specific PRR extension applies to divorcing couples: if one spouse transfers their share of the home to the other as part of the divorce settlement, the departing spouse retains eligibility for PRR on their share as long as the receiving spouse continues to use it as their main home. This is called a deferred disposal election and must be made formally. Without it, the departing spouse's PRR ends at the time of transfer.

Calculating CGT on a Jointly Owned Property Sale After Divorce

When the matrimonial home is sold after divorce (rather than transferred to one spouse), each party computes their own CGT based on their share of the gain. The gain is split 50/50 for jointly owned property unless ownership is documented differently. Each person applies their own annual exempt amount (£3,000 for 2026/27) and their own income to determine the rate.

For example: a couple bought a second property in 2015 for £200,000 and sell it in 2026/27 for £320,000. After selling costs of £5,000, the total gain is £115,000. Each spouse has a £57,500 share of the gain. After the £3,000 annual exempt amount, each has a taxable gain of £54,500. A higher-rate taxpayer would owe 24% × £54,500 = £13,080. A basic-rate taxpayer with £40,000 of salary has £10,270 of remaining basic-rate band (£50,270 − £40,000). The first £10,270 is taxed at 18% = £1,849; the remaining £44,230 at 24% = £10,615, total £12,464.

Shares and Other Investments in Divorce Settlements

Share portfolios and other investments transferred as part of a divorce settlement benefit from the same extended no-gain no-loss window (three years from the end of the year of separation, or indefinitely if under a court order). The receiving spouse takes over the original cost base, they inherit the history of the asset.

This means the receiving spouse could face a significant latent CGT liability on assets transferred to them. A share portfolio worth £80,000 that cost £30,000 carries an embedded gain of £50,000. If transferred at no gain/no loss, the receiving spouse takes over the £30,000 cost, they will pay CGT on the full £50,000 (plus any further growth) when they eventually sell. Both parties should consider this embedded liability when negotiating the division of assets.

Rates for 2026/27: shares and most other assets are taxed at 18% for gains within the basic-rate band and 24% for gains in the higher or additional-rate band. The same rates apply to residential property (other than your main home).