At Sweeney Miller Law, we regularly help clients unfamiliar with the strict rules that are associated with a divorce or separation and their financial settlement. For example, did you know that you could be taxed on transferring your marital home to your spouse?
Capital Gains Tax is a tax on the profit you make when you dispose of an asset, either by sale or transfer. At the moment, where an asset, such as property, business interests or shares, is transferred at ‘no gain/no loss’, then it must be transferred during the tax year of separation, so no later than 5 April. If not, then there is the possibility that Capital Gains Tax (CGT) may be payable if an asset is transferred after the tax year in which the couple separated. In the following tax year, transfers are treated as normal disposals for Capital Gains Tax purposes.
Unexpected tax liability
This means that once the tax year of separation ends, this tax “loophole” also ends, and the asset will be classed as “sold” at the market value and the gain would need to be assessed. This also applies if you transfer the family home to your spouse or vice versa as it would be deemed equivalent to a sale. Capital Gains Tax is not usually payable on the disposal of the main family home due to the exemption provided by the Principal Private Residence Relief which applies for the period of time of occupation of the property as your main home plus a further nine months.
Unfair on separating couples
Most couples are not ready to sort their finances so soon after separation as there is a lot to consider, particularly with high value and complex assets. If couples separate in March, it would leave very little time, just 10 months, to arrange their finances before a Capital Gains Tax liability could be triggered.
Recognising this flaw, the Government has drafted new legislation detailing changes to the rules on transferring assets between separating couples. However, this is not due to be introduced until 6 April 2023.
Get expert advice now Commenting on the changes, Head of Sweeney Miller Law’s Family Team, Rebecca Cresswell said: “We welcome the proposed changes. Splitting couples have enough on their plate without also having to worry about the clock counting down to what can be a considerable tax liability. Given that the new rules are still some way off, if you have recently separated from your partner, it is strongly recommended that you seek expert legal advice as soon as possible so that you have plenty of time to reach a settlement and transfer any assets before the end of the tax year.”
The Capital Gains Tax rule changes mean that separating spouses will be given up to three years after the year they cease to live together within which to make transfers without any liability. There is also a proposal that any spouse who remains in the marital home will be given an option to claim Private Residence Relief when it is sold rather than the current strict nine month rule. However, the new rules do not remove the tax issue completely, therefore it will remain an important factor when separating.
The new rules will be a welcome change for separating couples, especially given the financial stress and uncertainty during the cost-of-living crisis. We already see many couples who stay together because they are worried about how they can manage financially after separating. The Sweeney Miller Law Family team are here to help clients go through and help manage the future financial implications of the split. Clients are often concerned about paying the legal fees associated with divorce and separation, especially given the rising cost of energy bills, job insecurity and inflation generally. In response, we have lowered our fees for the divorce process and offer a fixed fee for this element of the case. In relation to the financial side of the divorce, we can structure your case so that it is manageable and will discuss all options with you. If you require advice regarding your separation and are worried about your financial settlement, please get in touch with our experts.
The Sweeney Miller Law family team has excellent connections with financial, tax and pension advisors who can advise on the valuation and division of assets, including pensions, following a split.
In addition, we have a large Conveyancing team that can help with the sale or transfer of the family home, as well as an experienced a Commercial team to assist in dealing with your company on divorce. We also have an Estate Planning team that can help you create a Will to reflect your new wishes. We help clients from start to finish with their divorce and financial settlement and offer a free initial no obligation 30-minute consultation.