During the course of marriage or as a result of divorce spouses and former spouses are likely to transfer assets to each other. Most assets do not attract capital gains tax as they are not specified for example assets such as shares in companies and immovable properties. In terms of section 16 of the Capital Gains Tax Act [Chapter 23:01], capital gains tax (CGT) is deferred where any specified asset is transferred between spouses or a principal private residence is transferred to a former spouse in compliance to a court directive. By deferment what is meant that tax will only be paid when the asset is disposed to a third party. Spouses refer to persons married in terms of the Marriages Act and it still remains to be seen if the term spouses will apply to couples in a life partnership in terms of property division made by a court.
It is important the benefit be claimed at the time the person making the election is submitting the CGT return for the assessment of their capital gain otherwise the benefit will be lost. To benefit from section 16 of the stated act the following requirements must be met ;
- That the ownership of any specified asset is being transferred from a person to his or her spouse; or
- That a person is transferring their ownership of a specified asset which is their principal private residence to their former spouse in compliance with an order of a court providing for the maintenance of the former spouse or dividing, apportioning or distributing the assets of the former spouses on or after the dissolution of their marriage.
When the specified asset is subsequently sold to another party, capital gain or assessed capital loss shall be calculated as if the asset is still owned by the first transferring spouse. It is also important to note section 16 of the Act in relation to former spouses relates to when there is a court order and not as elected or decided by the former spouses in the absence of a court order. Without, doubt it must be stated that the above deferment can only be granted by ZIMRA and for it to be granted an application for Capital gains clearance must be made . In the case of divorced spouses I encourage that this process be done swiftly after the granting of a divorce decree.
The deferment of capital gains tax granted to transfers between spouses is a brilliant opportunity worth pursing in estate planning by married couples.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.