Tax and Divorce

Posted on 15th February 2017 by Alexis Outram -  What's trending?


Image to represent Tax and Divorce

Transfers whilst together

Whilst living together as a married couple or civil partners, transfers are made at no gain/no loss; effectively you take on the original cost.

But once separated, if likely to be permanent, the rules change.

For the rest of the tax year to 5 April, the no gain/no loss rules apply; not much help if you separate late in the year.

After 5 April, the ‘connected party’ rules apply; transfers are at market value and charged to tax accordingly.  This continues until the decree absolute or final order is made.

The timing of transfers could therefore have a significant impact.

Matrimonial home

Probably one of the most valuable assets, ‘Principal Private Residence’ (PPR) rules should exempt any gain on the former matrimonial home, as long as it is transferred within 18 months of leaving. 

Thereafter, the gain could still be exempt if your former partner still lives in the property.  This would however affect the relief on any new home purchased.

Otherwise, the exempt gain will be based on the time it is, or deemed to be, your PPR, over the total period owned.

Business assets

It is likely that any family business, company shares or other business assets will be jointly owned.  Transfers must be structured so the business is not affected too much going forward and profits can be extracted tax efficiently.

In general tax law, a few reliefs reduce tax on many business assets (Furnished Holiday Lettings included). 

If the asset is gifted, the gain may be held over, and the recipient takes on the original cost.  Some relief is also available if it is transferred at an undervalue.

This relief also applies for agricultural land, used in a business or not.

Although not an actual ‘gift’, the relief is extended if the asset is transferred as part of a divorce settlement, unless there is a ‘gratuitous element’ (an amount in excess of what would be granted in a contested court case).

If this relief doesn’t apply, the tax rate on any gain could be reduced to 10% from the usual 20% (for gains above the basic rate limit) if there is a withdrawal from the business and Entrepreneurs’ Relief is available.

Also, if not deemed a gift, rollover relief could defer any gain for up to 10 years if any proceeds are reinvested in another business asset.

Investment assets

Investment assets, such as rental (not holiday) properties, cause more issues.

Unless covered by the annual exemption (£11,100 in 2016/17), deferral of gains could be available if a joint property portfolio is split equally, with some relief if the split is not equal.  Any tax still due would be at the higher rates of 18% and 28%.

Unfortunately, assets such as quoted share portfolios may be taxable in full.

It may be the last thing on your mind, but consulting your tax advisor as soon as you decide to separate, may save you, as a couple, a significant amount of tax at a time when funds may be at their most strained.


No Advice

The content produced and presented by Streets is for general guidance and informational purposes only. It should not be construed as legal, tax, investment, financial or other advice. Furthermore, it should not be considered a recommendation or an offer to sell, or a solicitation of any offer to buy any securities or other form of financial asset. The information provided by Streets is of a general nature and is not specific for any individual or entity. Appropriate and tailored advice or independent research should be obtained before making any such decisions. Streets does not accept any liability for any loss or damage which is incurred from you acting or not acting as a result of obtaining Streets' visual or audible content.

Information

The content used by Streets has been obtained from or is based on sources that we believe to be accurate and reliable. Although reasonable care has been taken in gathering the necessary information, we cannot guarantee the accuracy or completeness of any information we publish and we accept no liability for any errors or omissions in material. You should always seek specific advice prior to making any investment, legal or tax decisions.


Expert insight and news straight
to your inbox

Related Articles


How do you avoid financial forecasting that ends up with rain instead of sunshine?

Financial forecasting can often feel like the weather forecast, financial predictions not always being as rosy as planned, or in many cases, as hoped - a bit like the weather whilst sunshine is predicted rain all too often can be the outcome.  Whilst many businesses will look to ...


Working Capital Cycle

The longer the working capital cycle, the more time it takes for your business to get a robust cash flow. It’s good practice for businesses to manage their cycle by looking at each step where possible. This could be by selling stock or product quicker, collecting monies owed ...


Payrolling of benefits in kind to become mandatory

HMRC has announced that from April 2026 the reporting and paying of Income Tax and National Insurance Contributions (NICs) arising on benefits in kind provided to employees, must be collected through the employers payroll. What is the current position? Currently, taxable benefits and expenses must be reported to ...


You might also be interested in...