
Separating and divorcing couples should therefore think carefully about and plan the split of their assets as early as possible and take legal and tax advice to minimise the tax cost of their separation and leave as much value as possible to share between them.
These areas include Capital Gains Tax (CGT), Income Tax, Inheritance Tax (IHT) and Stamp Duty Land Tax (SDLT).
Transfers of assets between spouses are effectively exempt from CGT. This continues whilst the couple is living together (unless separated by court order/deed of separation). Transfers of value between spouses are also exempt from inheritance tax (IHT), as are legacies to spouses from the death estate.
If you are married or in a civil partnership, you can transfer assets from one to another without any CGT until you separate and then the transfer between one spouse and the other is only free from CGT for transfers that occur in the tax year in which the separation occurs, i.e., before the following 6 April.
Spouses or civil partners will be treated as separate for CGT when:
· Separated under an order of a court,
· Separated by a formal Deed of Separation executed under seal (except in Scotland where the deed should be witnessed)
· Separated in such circumstances that the separation is likely to be permanent.
· The marriage or civil partnership should have broken down. If the marriage or civil partnership has not broken down but the couple does not reside in the same house they are still treated as living together for CGT purposes.
Income Tax
There is no Income Tax to pay when transferring assets under a divorce settlement.
When the financial settlement has been made, it is possible that as part of the division of assets, you receive assets such as savings accounts or shares. In this case, income tax will be due on any income generated by these assets in the normal way.
Inheritance Tax
Transfers between spouses are tax-free until the date of Decree Absolute.
HM Revenue & Customs (HMRC) accepts that any transfer of property as a result of a court order is exempt from IHT, even if it takes place after the Decree Absolute.
The transfer of personal allowance continues until the end of the tax year in which the Decree Absolute is pronounced, as long as the transfer has been claimed before the pronouncement.
Stamp Duty
Stamp Duty Land Tax (SDLT) is payable on transactions including land and property. Any property that is transferred on divorce is generally not subject to Stamp Duty as long as:
· The transfer has been ordered by the court
· The transfer has been agreed upon by the parties concerned
If neither of the above applies, Stamp Duty will be payable.
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