Breaking up is hard to do and more painful if there is a tax bill!

Date posted: 7th Jul 2021

There could be a rise in the number of divorces, following recent announcement that the Divorce, Dissolution and Separation Act 2020 will come into force in April 2022. This Act means that married couples can divorce without assigning blame.

However, if this is a consideration, it is important not to fall into a tax trap. Whilst married couples and civil partners are able to transfer assets between each other, without generating a capital gains tax charge, this is only the case when they are an “actual” couple. There is an extension to this relief, where the couple separate, but only until the end of the tax year of separation. Therefore tax needs to be considered on any marital assets that are being transferred, particularly where the assets may be transferred after the tax year of the separation.

For example, if you irreconcilably break up after a spectacular row at the 2021 family Christmas gathering (hopefully those will be allowed this year!), then you would only have until 5 April 2022 to transfer assets between each other, without a tax charge. This could therefore be a short time frame, to seek tax advice and can be complicated where there are business or investment interests. If you are not aware of the tax charge, it could be a nasty surprise, particularly as capital gains tax, arising upon the transfer of properties, may have to be declared and paid within 30 days of the transfer.

Whilst the transfer of ownership of the family home, should be free of capital gains tax, again, there can be traps for the unwary, particularly where the home is not transferred for a number of years. In addition, if the spouse, who has left the home, buys another property, there will be extra stamp duty to pay.

We have seen a number of transactions take place, after separation, that have given rise to a tax charge in recent years. This includes one spouse appropriating company assets to pay the other spouse and another couple who separated but did not transfer the marital property for over 20 years which led to a large tax charge for the spouse who had left the home originally.

In addition, child benefit should also be considered as we have seen another case where one spouse applied for the child benefit but it is paid to the other spouse’s bank account, following separation. Following the introduction of the higher income child benefit charge, the applicant spouse, in this case, had to repay the child benefit received by their ex-spouse.

We can help you with planning for any taxes that may arise, as well as any business or share valuations that may be required. Please give us a call, in confidence, to discuss how we can help you.


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