Breaking Up and Tax

/ Tax

Author: Jason Burton

Tags: Assets, Capital Gains Tax, divorce, Tax

A little while ago, we talked about the tax advantages available when you get married. Unfortunately, some marriages will inevitably end with divorce. Tax will not be the first thing on the mind of divorcing couples, but that doesn’t mean that it shouldn’t be considered.

The primary concern for HMRC when it comes to divorce is capital gains tax on the split of assets. A divorcing couple can therefore minimize losses by utilising the no gain no loss rules for transferring assets between spouses. This is lost on separation, but only at end the of the tax year in which the separation is likely to be permanent. This creates the bizarre situation where, from a financial view, an affair should be revealed on the 6th of April to maximize the benefits! Unfortunately, accountants are rarely consulted when it comes to these matters.

The rules get murkier when you’re looking at how long the exes remain connected parties for CGT purposes. As connected parties, assets have to be transferred at market value, subject to normal capital gains tax. It’s not exactly an easy subject – here’s the HMRC manual passage that describes how to categorise asset transfers:

“So, where an asset is transferred following the date of decree absolute, or following the date dissolution is made final, in pursuance of an order made before decree absolute or before dissolution is made final, the date of disposal is the date of decree absolute or the date the dissolution is made final.”

Make sense to you? It didn’t to us, either.

Whilst divorces are never a great time, it can pay to make sure your assets are being handled correctly.

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