Divorce and Capital Gains Tax
July 2023
You may not realise that if you divorce your husband or wife and divide your assets, you might end up having to pay a capital gains tax (CGT) bill. Divorce and CGT is a complex topic but one that is important to understand so you are not the one who is unexpectedly footing a tax bill.
In this article, our specialist family law solicitors look at the latest rules on divorce and capital gains tax.
Initial Discussion
This summary provides general information and does not constitute legal advice on any individual circumstances.
For an initial discussion and a no-obligation quote, get in touch with us today by simply calling us on 01234 343134 or email us at enquiries@fullersfamilylaw.com and a member of our team will get back to you.
Understanding Capital Gains Tax
Capital gains tax is a tax imposed on the profit made from selling or disposing of certain assets, such as property, investments or valuable possessions. When a couple divorces, the division, sale, or transfer of assets may trigger a CGT liability. It is vital that you and your spouse understand the potential CGT liability so you can structure your financial settlement in the most tax-efficient way.
Capital Gains Tax Rules on Divorce
When a couple separates or divorces, they may need to sell or transfer assets, such as the family home, a buy-to-let property, a holiday home, investments, or shares in a family business. Some of those assets may be capital gains tax exempt such as the family home if it is a principal private residence. Other asset disposals may be liable to CGT.
The CGT rules on divorce changed in April 2023 so it is important that you get the latest specialist advice from your accountant. If you do not do so you may end up with an unexpected and large tax bill that you are liable to pay. You may have thought that you achieved a great financial settlement by negotiating direct or by not taking expert legal advice but it may have been a false economy if you end up paying HMRC a large amount in tax, meaning that in real terms you end up with less than your husband or wife.
The New CGT Rules
The new CGT rules give divorcing couples more time to minimise CGT liability. Under the old tax rules, a couple had to transfer assets between themselves within the tax year of separation to avoid CGT but the rules are now more generous as a couple has more time following separation to transfer assets without triggering a CGT charge. The new time limit is up to three years following the tax year of separation or at any time as part of a formal divorce agreement or court order.
In addition, there is greater flexibility if your financial settlement involves the deferred sale of an asset, as you may still benefit from principal private residence relief if you have left the family home and it is subsequently sold to a third party.
Specialist Tax Advice and Reports
Obtaining a joint specialist report from a tax advisor or accountant may be beneficial financially to understand exactly how much CGT is likely to be payable when an asset is disposed of. Specialist tax advisors and accountants have the knowledge and experience to understand when CGT is payable and what exemptions or allowances may be available in order to provide an accurate CGT calculation. Often getting the experts in early can save you time, money and stress.
How Can Fullers Help?
We understand that finding a solicitor that you feel understands your own specific situation can be a daunting task. So, you can book a free call back with us here.
We have also created a series of fixed-price consultation meetings with a full ‘no questions asked’ money-back guarantee promise.
For an initial discussion and a no-obligation quote, get in touch with us today by simply calling us on 01234 343134, filling in the contact form below, or emailing us at enquiries@fullersfamilylaw.com and a member of our team will get back to you.
