Following a challenging year, divorce statistics are up as relationships have buckled under the added pressures of Covid.
If you are a couple that is getting separated or divorced, apart from the emotional stress, there are also tax issues that can have significant implications. Whilst this is unlikely to be uppermost in your mind the tax consequences of the break-up must be carefully considered.
While Income Tax does not automatically cause an issue for separating couples as it is an individually assessed tax, other taxes need to be considered. For example, when a couple is together there is no Capital Gains Tax (CGT) payable on assets gifted or sold to your spouse or civil partner. However, if a couple separate and do not live together for an entire tax year or get divorced then CGT may be payable on assets transferred between ex-partners.
This means that the optimum time for a couple to separate would technically be at the start of the tax year so that they would have up to a year to plan how to split their assets most tax efficiently. Obviously, most couples will have far more on their minds in the real world than deciding to get separated on a certain day, but these issues should be kept in mind.
It is also important to make a financial agreement accepted by both parties. If no agreement can be reached, then applying to the court to make a ‘financial order’ will usually be required. The couple and their advisers should also give proper thought to what will happen to the family home, any family businesses, and Inheritance Tax implications.
If this situation sounds familiar, contact MJB Avanti (08000) 388 799 to find out how we can help you avoid the stress of tax matters alongside the heartbreak of divorce.