Taxation, unfortunately, is just one of the many matters which can complicate and add stress to the divorce process.

In fact, tax can have a considerable impact on any eventual divorce financial settlement and, as such, should never be overlooked. Always be sure to seek advice from a suitably qualified divorce lawyer in regard to the many possible UK tax implications of divorce and separation.

A good lawyer may even be able to help minimise the tax cost of divorce so that you, your spouse and, where applicable, your children can benefit as much as possible from the eventual divorce financial settlement.

One area of taxation of particular importance to divorce concerns is Capital Gains Tax (CGT). This is discussed in more detail below.

Capital Gains Tax and divorce

In the UK, when disposing of an asset Capital Gains Tax (CGT) is due on all profits or gains made. This is effectively a tax on any unearned income.

However, transfers of assets between spouses are, with the exception of certain circumstances, not subject to any form of CGT.

As such married couples can make CGT-free transfers of assets including property at any time during the year, as long as they have resided together for at least part of the tax year.

Even divorcing couples are able to make these CGT-free transfers. This is because divorcing couples retain the right to do so up until the end of the tax year in which they formally separate.

Private residence exemption

If as part of your separation and divorce you move away from the family home it is, by definition, no longer your primary residence and as such may lose its CGT-free status.

However, if you have passed your share in the property to your former partner or spouse, you may still be entitled to claim Private Residence Relief (PPR) up until the date at which you disposed of your share.

This is true as long as one or more of the following criteria are met:

  • The transfer took place within three years of separation.
  • The transfer was received by the spouse/civil partner who continued to live in the property.
  • The transfer formed part of a divorce financial settlement to the civil partner/spouse who has moved out but has not elected to treat another property as their main place of residence.

In the event that the above criteria are not met then CGT is payable. However, the amount of tax may be reduced proportionate to the length of time that the qualifying property was the main residence.

Cost benefit

It is advisable to have a divorce lawyer or accountant carry out a cost-benefit analysis when buying property after moving away from the family home. This can help you determine whether your CGT PPR is able to be applied tax-efficiently.

Sometimes it may also be advisable to sell the family home quickly rather than for it to gain in value while remaining unoccupied, which can be disastrous in terms of ensuring maximum CGT relief; homes should generally be sold within 18 months of leaving the property.

CGT rates

CGT rates depend on your level of income. As of 6 April 2017 basic rate tax – those with earnings under £33,500 – will pay 18% on profit falling within this basic rate.

Higher or additional rate taxpayers pay the full rate of CGT, which stands at 28%.

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