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Tax when transferring assets during divorce

23 May 2024

When a couple is separating or is divorced it is unlikely that they are thinking about the tax implications of their actions. However, apart from the emotional stress, there are also tax issues that can have significant implications.

During a separation or divorce, couples may not consider the tax implications. However, these can have significant consequences beyond the emotional strain.

The rules for Capital Gains Tax (CGT) on disposals made after 6 April 2023 have changed. Now, separating spouses and civil partners can transfer assets without gains or losses for up to three years after they stop cohabiting. Additionally, this period is indefinite if the assets fall under a formal divorce agreement. Previously, this tax relief was limited to the tax year in which the couple separated.

Individuals with a financial interest in a former family home also have special rules to follow. These rules allow them to claim private residence relief (PRR) when they sell the property.

Reaching a financial agreement during divorce proceedings is essential. If the parties cannot agree, they may need to seek a court-issued ‘financial order.’

Couples and their advisors should carefully consider the fate of the family home, any family businesses, and the inheritance tax implications of their separation or divorce.

In addition, understanding the nuances of tax law during such a tumultuous time is challenging. Professional advice can be invaluable in navigating these complexities. Advisors can help ensure that both parties make informed decisions about asset division, minimizing potential tax liabilities. It’s important to address these issues promptly, as they can affect both parties’ financial futures long after the divorce is finalized. Engaging with a tax specialist early in the process can lead to more equitable and tax-efficient outcomes.

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Source: HM Revenue & Customs Tue, 21 May 2024 00:00:00 +0100

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