Divorce is a challenging and emotional process, and the financial implications can be complex. Among these number of considerations, understanding the tax implications is crucial.

Capital Gains Tax

When a couple divorces, the transfer of assets between them usually doesn’t incur Capital Gains Tax (CGT) if the transfers occur in the tax year of separation.

However, if the asset transfer happens in a subsequent tax year, CGT may be charged. This means if you’re transferring the family home or shares in a business to your ex-spouse after the tax year you separated, you might have to pay CGT on any increase in value.

Income Tax

Your marital status affects your Income Tax. Once you’re separated and living apart, you can’t claim the Married Couple’s Allowance.

However, if you’re receiving maintenance payments from your ex-spouse, these are not taxable.

On the other hand, if you’re the one making the payments, you can’t deduct them from your taxable income.

Inheritance Tax

Gifts between spouses or civil partners are usually exempt from Inheritance Tax (IHT). However, once you’re divorced, this exemption no longer applies.

If you make a gift to your ex-spouse and then die within seven years, the gift might be subject to IHT.

Pensions

Pensions can be a significant asset in a divorce. They can be split in several ways:

• Pension sharing – You get a percentage of your ex-spouse’s pension. This is transferred into a pension in your name.
• Pension offsetting – The value of the pension is offset against other assets. For example, one spouse might keep the pension, while the other gets the family home.
• Pension earmarking – Some of the pension income is paid to the ex-spouse when the pension starts being drawn upon.

The tax treatment of pensions depends on how they’re split.

Property and the family home

The family home is often the most significant asset in a divorce. If you sell the home and split the proceeds, there’s usually no CGT to pay if it’s been your main residence.

However, if one spouse moves out and the home is sold later, they might have to pay CGT on their share of the increase in value since they moved out.

Child benefits

Only one parent can claim Child Benefit, even if you share custody. If both parents claim, HM Revenue & Customs (HMRC) will decide who gets the benefit.

It is worth noting that if the parent receiving the Child Benefit has an income over £50,000, they might have to pay the High Income Child Benefit Charge (HICBC).

The tax implications of divorce can be tricky to navigate, and everyone’s situation is unique. If you’d like further advice on the tax implications of a divorce, please get in touch.

Capital Gains Tax (CGT) is a tax on the profit or gain you make when you sell or dispose of an asset that has increased in value. It is the gain you make that’s taxed, not the amount of money you receive.

Understanding when you’re subject to CGT and what you need to pay is crucial for financial planning.

When are you subject to Capital Gains Tax?

The most common scenario where CGT comes into play is when you sell an asset for more than you paid for it. This includes selling property, shares, or personal possessions worth £6,000 or more, apart from your car.

If you give away assets to someone other than your spouse or civil partner, you might be subject to CGT. The amount of tax is based on the asset’s market value at the time of the gift.

If you inherit an asset and later sell or dispose of it, you may need to pay CGT on the gain since the time you took ownership.

Transferring assets to a business can also trigger CGT, and if you receive compensation for an asset, like an insurance payout for a damaged item, CGT might be applicable.

What do you need to pay?

To calculate the CGT, you first need to determine your taxable gain. This is the difference between the selling price (or market value in case of gifts) and the purchase price (or the value when you inherited it). From this gain, you can deduct costs like broker fees or solicitor fees.

Every individual in the UK has an annual tax-free allowance, known as the Annual Exempt Amount. For the 2023/2024 tax year, this is £6,000. This means you only pay CGT on gains above this threshold.

The rate at which you pay CGT depends on your taxable income and the type of asset. For individuals, the rate is:

• 10 per cent for basic rate taxpayers
• 20 per cent for higher or additional rate taxpayers

For residential property, the rates are:

• 18 per cent for basic rate taxpayers
• 28 per cent for higher or additional rate taxpayers

There are reliefs and allowances, apart from the Annual Exempt Amount, that can reduce your CGT. Some of these include:

• Business Asset Disposal Relief
• Private Residence Relief
• Letting Relief
• Gift Hold-Over Relief

Reporting and paying CGT

If you have CGT to pay, you can either report and pay it straight away using the Capital Gains Tax service, or you can report it in a Self-Assessment tax return.

If you’re using the latter, ensure you send your return by 31 January after the tax year when you had the gains.

CGT can seem daunting, but with a clear understanding of when it applies and what you need to pay, you can manage it smoothly and effectively. We are on hand to provide assistance on any CGT-related matters, contact us today for more information.

Charitable giving not only benefits the recipient but can also offer tax advantages to the donor.

The Gift Aid scheme allows charities to claim back 25p every time an individual donates £1 at no extra cost to the donor.

If you are a higher-rate taxpayer, you can claim additional tax relief on your donations.

What is Gift Aid?

Gift Aid is a tax incentive that allows charities and community amateur sports clubs (CASCs) to claim back the basic rate tax already paid on donations by the donor. This means that if you’re a taxpayer and you make a donation under Gift Aid, the charity can claim an extra 25 per cent from the government.

How does higher rate tax relief work?

If you pay tax above the basic rate, you can claim the difference between the rate you pay and the basic rate on your donation. Here’s a breakdown:

If you pay tax at the higher rate of 40 per cent, you can claim back 20 per cent on your gross donation (the donation amount plus Gift Aid).

If you pay tax at the additional rate of 45 per cent you can claim back 25 per cent on your gross donation.

Recording charitable donations

Whenever you make a donation under Gift Aid, ensure you keep a record of the amount, the charity’s name, and the date of the donation. This can be in the form of bank statements, chequebook stubs, or written confirmations from the charity.

For a charity to claim Gift Aid on your donation, you must complete a Gift Aid declaration. This confirms that you’re a UK taxpayer and have paid enough tax to cover the Gift Aid claim by the charity.

If you are a higher or additional rate taxpayer, keep a note of the total amount of Gift Aid donations you’ve made during the tax year. This will be crucial when claiming your additional tax relief.

Claiming higher rate tax relief

If you complete a self-assessment tax return, you can use it to claim back the additional tax relief. Include your total Gift Aid donations on the form and the tax relief will be calculated for you.

If you don’t complete a tax return, you can contact HM Revenue & Customs (HMRC) and ask for an adjustment to your tax code. This will allow you to receive tax relief directly through your wages or pension.

If you’ve failed to claim tax relief from previous years, you can do so by writing to HMRC. Provide details of your donations and ensure you make the claim within four years of the end of the tax year in which you made the donation.

The Gift Aid scheme offers a win-win situation for both charities and donors. Charities receive an additional 25 per cent on donations, and higher-rate taxpayers can claim significant tax relief.

If you’d like more advice and information about claiming higher rate tax relief through Gift Aid, then contact us today.

Taxpayers who use QR codes to make payments on their mobile devices have been warned by HMRC to beware of scammers.

HMRC includes QR codes on a welcome letter it posts to taxpayers who are newly registered for Self-Assessment, which takes them to the authority’s advice pages.

The QR code is only displayed when the taxpayers first log into their HMRC online account through the Government Gateway, on a desktop browser.

Once that has been completed, taxpayers can scan the code with a mobile device, which allows them to make a payment.

Online account

HMRC says taxpayers should only use a QR code that is presented to them while logged into their HMRC account, via the Government Gateway.

Payment details displayed on their mobile banking platform should match those shown in their HMRC online account. 

HMRC says if a taxpayer receives a QR code via email or another electronic message, it is a scam and taxpayers are encouraged to report it.

Helpline advice

HMRC added that from January this year, it may send a text message if taxpayers call one of their helplines from a mobile phone.

The caller will be told to expect a text message immediately or shortly after the call, which may send a link to the relevant GOV.UK information or a webchat.

HMRC says it will never ask for personal or financial information when sending text messages. It warns not to open any links or reply to a text message claiming to be from HMRC that offers you a tax refund in exchange for personal or financial details.

Reporting suspicious activity

Scammers often pretend to be HMRC by texting or emailing a link that will take customers to a false web page, where their bank details and money will be stolen. Fraudsters are also known to threaten victims with arrest or imprisonment if a bogus tax bill is not paid immediately.

People can report suspicious phone calls using a form on GOV.UK; customers can also forward suspicious emails claiming to be from HMRC to phishing@hmrc.gov.uk and texts to 60599.

Anyone who is in doubt about whether a website is genuine should visit GOV.UK for more information about Self-Assessment and use the free signposted tax return forms.

Having problems with Self-Assessment and related tax matters? Contact us today.

As the values of some cryptocurrencies like Bitcoin have soared, it has allowed many people to make substantial financial gains.

This inevitably brings HM Revenue & Customs (HMRC) into the picture, with its compliance officers using data-gathering powers to identify potential tax avoidance offenders.

Taxing cryptoassets

Tax liabilities depend upon the way the profit was gained and the circumstances of the business or individual which means that buying or selling using cryptocurrency – or acquiring cryptocurrency as an investment – could result in a liability to Income Tax, Capital Gains Tax (CGT), or Inheritance Tax (IHT).

How to remain compliant

If you have achieved cryptoasset gains that are liable to CGT, you will need to report this on a tax return and pay the arising tax by 31 January following the end of the tax year in which they arise.

If you do not usually complete tax returns it is necessary to register with HMRC within six months of the end of the tax year.

When calculating CGT payable on cryptoassets, the standard CGT tax exemption is available, entitling every taxpayer to annual gains of £12,300  before any tax is payable. Anything above that figure is subject to taxation.

Gifting cryptoassets

Just like other assets, cryptoassets can be given away as part of a lifetime gifting strategy.

They are considered to be property for the purposes of IHT and will form part of an individual’s estate. However, because of the volatile nature of the market, any gifting should be done with caution after taking expert advice. Gifts between spouses are always tax-free, as with other types of assets.

Income Tax 

If HMRC decides that you are trading, rather than just investing, it may tax your profits as income instead of gains. This typically occurs where an individual is:

·        Actively mining cryptocurrency

·        Is considered a dealer due to the volume of trade they complete

·        Validating transactions

·        Staking and yield farming.

In all of these cases, a person is likely to be remunerated through the receipt of fees and/or further cryptoassets in return for their services. On this basis, these rewards may be subject to income tax.

Some employers are also choosing to pay staff via cryptoassets. If an employer awards cryptoassets, they are taxable as employment benefits.

Need advice on the taxation of cryptocurrencies and other taxation matters? Contact us today.

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.

Need advice on minimising taxation liabilities when divorcing? Contact us today.

Changes to the reporting of sales of UK residential properties to HM Revenue & Customs (HMRC) were introduced in April 2020.

The result was that you were required to report and pay any 2Capital Gains Tax (CGT) due within 60 days of selling the UK property or land if the completion date was on or after 27 October 2021.

Previously the deadline for reporting and making payment of any CGT was 30 days.

Reporting property disposals

Who will need to submit the CGT Return within 60 days?

·        Individual taxpayers

·        Joint owners of the residential property

·        Partners in general partnership and limited liability partnership (LLP)

·        Trustees of a trust

What types of property sales fall within the scope of a 60-day CGT Return?

·        Buy-to-let residential property

·        Holiday homes or second home

·        Residential properties you partly lived as a primary residence or never lived as your primary residence

·        House of multiple occupations

What types of transactions fall within the scope of the 60-day CGT return?

Whether the transaction is a sale, a gift, a transfer of deed or declaration or any other transfer means it falls within the scope.

HMRC will impose a late filing penalty and charge interest if you miss the 60 days from the date of conveyance to report your disposal and pay any tax due.

If you miss the deadline by:

·        Up to six months, you will get a penalty of £100

·        More than six months, a further penalty of £300 or five per cent of any tax due, whichever is greater

·        More than 12 months, a further penalty of £300 or five per cent of any tax due, whichever is greater

Need help understanding and complying with the 60-day rule? Call us today.

The pandemic forced millions more people to work from home, and as a result, the Government introduced an income tax allowance of £6 a week.

The rules were also temporarily changed so employees didn’t need to prove that they worked from home regularly. Instead, it meant they could claim up to £140 per year even if only working from home for one day.

As many workers are now back in the workplace, HMRC has updated its guidance for the 2022/23 tax year.

Those employees, who are still eligible, can claim from the current tax year 2022/23 onwards for tax relief, but they can’t claim if they choose to work from home.

What has changed?

The eligibility criteria are different depending on which tax year you are claiming for.

For the 2020/21 and 2021/22 tax years, employees will need to meet the following criteria to be eligible for the working-from-home tax relief:

·        Your employer told you to work from home.

·        Your household costs increased because of working from home.

·        Your employer did not pay your expenses to cover the extra costs associated with working from home.

Claims can be backdated for the working-from-home allowance, so there is still time to claim for both the 2020/21 tax year and the 2021/22 tax year.

However, for the 2022/23 tax year, employees can’t claim tax relief if they choose to work from home.

This includes if their contract lets them work from home some or all of the time, if they work from home because of COVID-19 or if their employer has an office, but they cannot go there sometimes because it’s full.

But some people will still be able to claim with HMRC giving examples of if their job requires them to live far away from the office. Or the employer doesn’t have an office.

Need advice on income tax relief? Contact us today.

Investing in property can still provide a strong return, but it needs careful planning to achieve the best outcomes.

Just buying new properties without a clear strategy would be risky.

While it is true that rates of interest continue to increase, as do many of the costs associated with being a landlord, with the correct approach property can continue to provide a good income.

Mortgages

Many landlords enter the market by purchasing their property using a buy-to-let mortgage.

In many cases, landlords have even forgone paying off their mortgage favouring interest-only buy-to-let mortgages, which minimise their monthly outgoings to enjoy a greater overall return.

However, with the Bank of England steadily increasing the base rate, many lenders are also increasing their interest rates driving up the cost of debt.

For those on fixed-rate mortgage deals, their current rate shouldn’t change until their current offer ends, but for those on tracked and variable rates, which increase alongside the base rate, the costs of their mortgages could wipe out any profits.

Lenders are unlikely to offer any new fixed deals at lower rates for some time, so what can be done to cut mortgage costs?

One option to consider if you already have multiple buy-to-let mortgages is consolidation.

Consolidating multiple debts into a single property loan could help to reduce the amount paid overall.

If you are considering further growth and you have multiple mortgages, you might want to consider a buy-to-let portfolio mortgage.

Many lenders offer this kind of product, which allows you to combine your borrowing under a single web of loans, while also allowing you to use the equity within the portfolio to cover deposits for new homes.

Looking to sell?

When the main home is sold, there is usually no Capital Gains Tax (CGT) due thanks to Principal Private Residence Relief, but tax may be owed on the gains you have made on a second home or investment property.

Higher and additional rate taxpayers pay CGT on property disposals at a rate of 28 per cent, while basic rate taxpayers may pay tax on some of their chargeable gains at a rate of 18 per cent.

Tax is only charged on the gains made on a property, not the total value of the sale, and most taxpayers benefit from an annual CGT tax-free allowance of £12,300 (2022/23).

Any CGT due on UK residential property disposals made by UK residents must be reported and paid within 60 days of completion.

Whether you are looking to grow or sell your portfolio it is important to have a plan in place and seek professional advice to make the most of your assets.

More than half (52 per cent) of UK adults want to see Inheritance Tax (IHT) either scrapped or reduced, according to a new survey.

It comes as £8 billion is expected to be raised in IHT receipts by 2027/28 after Chancellor Jeremy Hunt announced a freeze on the 40 per cent threshold in his Autumn Statement.

That figure from the Office for Budget Responsibility (OBR) shows an increase of 28 per cent in that period.

The survey by Handelsbanken Wealth & Asset Management shows more than a quarter (27 per cent) of adults want to see IHT scrapped and a quarter (25 per cent) want to see it reduced, with over-65s at 30 per cent most in favour compared with just 22 per cent of 35 to 49-year-olds

The Treasury took in £4.1 billion of Inheritance Tax from April to October this year, £ 500 million higher than in the same period a year earlier and an increase of 14 per cent, according to HMRC.

How does it work?

There’s normally no Inheritance Tax to pay if either:

• The value of your estate is below the £325,000 threshold
• You leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club

The standard 40 per cent is only charged on the part of the estate that’s above that threshold.

For example: If the estate is worth £500,000, the Inheritance Tax charged will be 40 per cent of £175,000 (£500,000 minus £325,000).

But with house prices rising and the value of estates increasing, more people are likely to be dragged into paying the tax.

What else can you do to reduce the Inheritance Tax liabilities?

• If you give away your home to your children or grandchildren your threshold can increase to £500,000
• Provide gifts of up to £3,000. This will be tax-free and under annual exemptions.

Other ways which may allow you to reduce your IHT liability include Business Property Relief and Agricultural Property Relief.