Tax is likely not the first priority when dealing with a divorce or end of a civil partnership, Whilst the splitting of assets can appear simple, there are often hidden tax implications. Our August Spotlight focuses on the important tax points which should be considered. Below, we have highlighted some of the key general information relevant to our clients, however this does not constitute legal advice.
The Family Home
The family home represents not only the likely largest asset to be split, but also one of the most sensitive tax areas. Transferring property between partners, including those transferred during divorce proceedings, is often exempt from Stamp Duty Land Tax, however this can vary depending on where in the United Kingdom the property is located. Transferring a mortgage, however, can potentially result in a SDLT charge, and agreement from the lender needs to be secured before the mortgage can be transferred.
As with transfers between spouses, transfers of assets arising as a result of a formalised divorce/separation agreement often take place on a ‘no-gain, no-loss’ basis, often without time limit. Whilst this is relevant for the transfer of property, this is also relevant for other assets such as shares and investments, land and valuable personal property.
Reviewing Current Tax Allowances
Child Benefit position should be considered, with separation potentially changing who is able to make a claim, or liable for any charges arising from exceeding an income threshold. Marriage Allowance must also be cancelled, which could affect your tax position.
Other Considerations
Maintenance payments: The tax position of these depends on whether they are for child or spousal maintenance. It is important to check this to see if income tax is payable.
The exact tax position often depends on certain key dates, and it is important to note that for some taxes, i.e. Capital Gains Tax, couples are often treated as living together unless formalised by legal processes.
Divorce and separation can be a complicated process. Please contact our tax team for advice on any tax matters surrounding separation.
