Agreeing a fair financial settlement
When a couple divorces or separates, they must agree how to divide their finances. Money and property after divorce can cover a wide range of assets. Typically, these include:
- The family home and any other property
- Pensions built up by either party
- Savings, investments and business interests
- Ongoing maintenance payments
Wherever possible, reaching agreement without going to court proves quicker and cheaper. However, in England and Wales, a court must usually approve the agreed division. Couples achieve this through a consent order. Only then does the agreement become legally binding.
Why Capital Gains Tax matters
Tax deserves careful thought when you restructure assets. Under current Capital Gains Tax rules, separating spouses and civil partners receive an extended window. During this period, they can transfer assets between themselves on a “no gain, no loss” basis. Consequently, no immediate Capital Gains Tax (CGT) liability arises.
The normal period runs until the earlier of two dates:
- The end of the third tax year following the tax year in which the couple stopped living together
- The date on which the divorce, annulment or civil partnership dissolution becomes final
The unlimited concession for formal agreements
Importantly, a further concession also applies. Where former spouses or civil partners transfer assets under a formal divorce or separation agreement, or under a court order, no gain/no loss treatment applies without a time limit. Therefore, qualifying transfers may still attract the relief years after separation.
What this means in practice
No gain/no loss treatment does not normally wipe out the underlying gain. Broadly, the recipient inherits the transferring partner’s CGT base cost. As a result, the accumulated gain may become taxable on a later disposal. In addition, special rules can apply to the former matrimonial home. These include provisions affecting Private Residence Relief.
Timing therefore shapes the outcome significantly. Money and property after divorce rarely divides neatly, so plan each transfer carefully.
Take advice before you transfer anything
Anyone handling substantial matrimonial assets should seek specialist legal and tax advice first. The timing and terms of your agreement can affect the eventual tax position considerably.
Are you separating and unsure where to start? Contact our team today. We will help you structure a settlement that works financially and stands up to scrutiny.
