It’s easy for tax to be overlooked as money and tempers can be short during a divorce. This can lead to problems and unexpected tax bills. There is no tax exemption when you and your spouse or partner divorce or separate.
Here is how you can save tax:
If one of the parties was born before 6 April 1935, any maintenance payments made under a divorce settlement are tax free for the recipient, but no tax relief is available for the payer.
Capital Gains Tax
The main issues when getting a divorce or separation are the disposal values of assets, timings and the availability of Capital Gains Tax reliefs.
The key assets affected are:
- The marital home
- Other land and property
- Business assets
However, there is Capital Gains Tax exemption for transfers between spouses who are living together. These are made at a nil gain or loss. This only applies up to the end of the tax year of separation. But to confirm whether the exemption applies to you, you need to determine the following:
- Is there a court order or deed?
- Have divorce lawyers been engaged?
- Has one party moved out?
- When did the departing spouse rent or buy a new home?
- Have tenants of any investment property been given notice?
- When were correspondence details changed?
You should make sure that you have all possible evidence to support your conclusion in case HMRC try and challenge this.
Timing of Asset Disposals
If you delay your separation or divorce until 6 April during the year, you would have until 5 April the following year to arrange your finances without incurring a capital gains tax liability.
This would give you more time to deal with your affairs and avoid any other tax implications.
Stamp Duty Land Tax
Transfers are usually exempt from Stamp Duty Land Tax, even though consideration may be given as part of the agreements surrounding the divorce or separation.