CGT Tax Implications on Divorce

by Ridley & Hall in Divorce, Family & Matrimonial, Vicky Medd posted April 20, 2018.

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When couples divorce, there are tax implications to consider. Clearly, clients should obtain advice from an accountant but there are a few rules to be aware of.

Make sure you identify the date of separation as that is really important in identifying the tax implications of divorce.
When a couple are married, assets can be passed between them without any tax implications. However, this is not the case after separation.
For those wanting to organise matters accordingly, separation on or shortly after the 6^th April will provide couples the most time to organise their joint affairs.
You have to consider income tax and inheritance tax implications of divorce.
Capital gains tax implications can offer the largest chance for an unexpected liability particularly if it takes time to agree on the separation of the assets.

Capital Gains Tax

When a couple are married, assets can be transferred between them on a nil gain, nil loss basis which means that no taxable gains arise on the transfer. This spouse exemption ends at the end of the tax year following separation. Identifying the date of separation is so important in identifying the tax implications on divorce.

If assets are transferred after the year of separation, the couple are classed as not connected persons and the transfer will be deemed to take place at market value and CGT disposal will also take place. If however a couple transfers assets in the year that they separated, then the spousal transfer rules apply.

This applies to properties and although there is principle private residence relief available, if one person has left the property, that home ceases to be the main residence of the partner who leaves it following separation.

In the circumstances, keep these principles in mind when separating and ensure that you provide sufficient time to be able to make plans to sort out financial issues between you.

For further information, please do not hesitate to contact Vicky Medd at Ridley & Hall on 0800 8 60 62 65.