The tax implications of separation or divorce

Couples break up at any time of the year, although it’s particularly common around now. Christmas is over and it’s still winter – but spring is just round the corner. Time, perhaps, for a fresh start.

Unfortunately, for tax reasons it’s not a good time to separate.

That’s because it doesn’t give the couple much time to agree how to split their assets, before the start of the new tax year in April.

Let me explain. When a couple are together, there’s no capital gains tax (CGT) payable on assets (e.g. property or shares) that are transferred from one spouse or civil partner to the other.

However, if the couple permanently separate or divorce, then CGT is payable. This could lead to a significant tax charge in the case of jointly owned property, for example, that is 100% transferred to one partner.

There is, though, an exemption if the transfer takes place in the same tax year as the separation.

But for a couple separating in February, the chances of them finalising the split of their assets before the 5th of April are slim. A far better time to separate would be at the start of the tax year – although life, obviously, doesn’t work like that.

Planning note

A couple considering separation or divorce should give proper thought to:

  • Timing – as outlined above
  • What will happen to the family home
  • What will happen to any family business
  • Inheritance tax implications

Here at Johnston Kennedy, we can provide you with expert advice on this.

 

For more information, call us on +44 (0) 28 9045 6333 or
email
info@johnston-kennedy.com

 

This blog post provides general information only and may not apply to your particular circumstances