Upcoming tax changes for couples who are divorcing or separating.
Tax should not be the main motivation for what you do, but sometimes a little thought and preplanning can avoid paying more tax than you have to. You also have to bear in mind the tax consequences of any proposed financial settlement, to ensure it is fair on both parties.
Some suggested changes, particularly to CGT (Capital Gains Tax) may affect divorcing couples. This post assumes a reasonable working knowledge of CGT but the main issue is that transferring assets between a husband and wife who are separating can give rise to a charge to CGT which is payable by the person transferring the asset (or part asset) rather than by the person receiving it.
The issue relates mostly to business assets, and investments such as shares, rental properties and second homes because generally speaking a transfer or sale of your home will not result in a charge to CGT. That is because it is likely to benefit from “principal private residence relief” but there are exceptions to that and potential snags and pitfalls.
The opportunity to transfer assets at “nil gain nil loss” CGT purposes can be a useful tax planning tool for separating couples. Whilst in most cases it effectively postpones the CGT liability to a later date, it avoids an immediate charge to Capital Gains Tax which under present rules generally has to be paid within 30 days of the transfer.
But at present the window of opportunity closes at the end of the tax year in which they separate. So transfers which take place after 5 April following their separation are subject to the usual rules. For many couples who separate late in the tax year, this really does not give enough time to decide how to share their assets fairly between them and then put the various transfers into place.
The Office of Tax Simplification has been considering this rule, and the overwhelming majority of responses to their consultation supported an extension. So they suggest the window should remain open until the later of two tax years after the date of separation, or the date of transfer specified in a court order.
It is not clear when or whether their suggestion will become law, but it would be a welcome change which will bring CGT closer into line with SDLT ('Stamp Duty') rules.
These points form just part of the picture – you need to ensure that you take proper advice about any financial settlement before you proceed with it.
Health Warning :This post is intended as a general guide only – tax is a very complicated subject, and getting it wrong can be very expensive so it is important to obtain expert advice about your own situation, I can certainly accept no responsibility for any loss you might suffer as a result of relying purely on the information on this website.
John Pratley is an expert divorce lawyer, who has more than 25 years’ experience advising clients purely about divorce and related family law issues, such as the financial consequences of separating and divorcing. After establishing the first niche family law practice in Bristol, and going on to senior management roles in a national firm, John set up Apple Tree Family Law in 2018. Apple Tree Family Law solicitors specialise in advice about divorce and financial issues.
We are based in Bristol and Exeter, but we have clients all over the UK and further afield. We offer, simply, clear and accurate advice about divorce and family law issues, and the very best client service, for a clear and reasonable price.