CG22420 - Transfer of assets: between spouses or between civil partners: separation, divorce or dissolution

A Court Order may be issued by the Court where parties to a divorce or dissolution are unable to reach an agreement between themselves, or where the parties wish the Court to give effect to their agreement.   

Where a Court Order is issued, it will take priority over agreements between the parties pre-dating that Court Order.  This is per the decision of de Lasala v de Lasala [1980] AC546, and followed inAspden v Hildesley (55TC609) and in Harvey v Sivyer (58TC569). 

Valuation  

Transfers between spouses, as well as civil partners, are ordinarily treated as occurring on a nogain/noloss basis as per the provisions of s.58 TCGA92.  Further information can be found on the treatment of transfers between spouses at CG22200. 

Where the nogain/noloss rules do not apply, other valuation provisions apply. Spouses, as well as civil partners, are connected persons pursuant to s.286(2) TCGA92.  This remains the case until the date of the Final Order, even if the parties are separated.  

As connected parties, disposals between spouses, as well as civil partners, transactions between the parties are covered by the provisions of s.18(2) TCGA92 and market value rule will be applied in accordance with s.17(1)(a) TCGA92.  Further information onconnected persons and the market value rule can be found at CG14580. 

The market value ruleapplies for transfers before 6 April 2023except where the asset is transferred in the year of assessment in which the couple became permanently separated;such a disposal adopts the ordinary nogain/noloss treatment.  The nogain/noloss treatment applies for transfers on or after 6 April 2023 if the asset is transferred up to the earlier of the end of the third tax year in which the couple became permanently separated or the day on which a court grants an order for divorce or dissolution of their civil partnership.See CG22200 for further information. 

Valuation after date of Final Order 

Following the issue of the Final Order former spouses are no longer connected persons by virtue of their former marital relationship. Equally following the date the dissolution order is made final, former civil partners are no longer connected persons by virtue of their former relationship. Although the parties may still be connected persons for some other reason. 

In circumstances where the parties are no longer connected you may normally accept that a subsequent sale of an asset by one to the other is a transaction at arm’s length. However, if the disposal between them is in pursuance of a court order, and the no gain/no loss treatment does not apply, TCGA92/S17(1)(a) would still apply to the transaction to deem the disposal consideration to be equal to the market value of the asset at the date of disposal. This is because, notwithstanding that the parties are no longer connected, the disposal cannot be a ‘bargain at arm’s length’ as a court order is not a ‘bargain’ between the parties; it is the court who decides on the terms, not the parties to the order. This is confirmed in the case ofHaines v Hill ([2007] EWCA Civ 1284) at [54]. 

Where an asset is transferred on or after 6 April 2023 in pursuance of a court order after the Final Order or dissolution, the disposal can be at no gain or loss in certain circumstances.  See CG22200 for further information.  

Date of disposal 

The date of the Court Order will ordinarily be the date of disposal.  This is however subject to the particular circumstances of the transfer. 

Asset transferred under a court order before the date of the Final Orderdecree absolute or before the dissolution of the civil partnership is made final  

Court orders of this type do not take effect until the Final Order(or decree absolute prior to 6 April 2022) has been granted or until dissolution has been made final. It is well established in case law that until the order takes effect it is contractual in nature. Therefore where an asset is transferred in pursuance of such an order before the date of theFinal Order decree absolute or the dissolution of the civil partnership is made final, the transfer is treated as a disposal under a contract. The parties are treated as entering into the contract on the date of the court order. 

Asset transferred after the date of the Final Orderdecree absolute or after the dissolution of the civil partnership is made final, in pursuance of a court order made before the date of the Final Order decree absolute or before the dissolution of the civil partnership was made final 

As set out above, a court order embodying the terms of the settlement made before the Final Orderdecree absolute or before the date of dissolution of the civil partnership, remains contractual in nature until the date of the Final Orderdecree absolute or the date the dissolution is made final. After that date the court order ceases to be contractual and the terms derive their legal effect from the court order itself. 

So where an asset is transferred following the date of Final Orderdecree absolute, or following the date dissolution is made final, in pursuance of an order made before the Final Orderdecree absolute or before dissolution is made final, the date of disposal is the date of the Final Orderdecree absolute or the date the dissolution is made final. 

Asset transferred in pursuance of a court order made after the date of Final Orderdecree absolute or after the date the dissolution of the civil partnership is made final 

Where a court order is made after the date of the Final Orderdecree absolute or after the date that the dissolution of the civil partnership is made final and an asset is transferred in pursuance of that order, the date of disposal is the date of the order. 

Where you are required to consider the date of disposal of an asset transferred under a court order you will need to obtain a full copy of the order. This may enable you to resolve the matter, but if not Capital Gains Technical Group can give further advice.