CGT on divorce

If the emotional and practical aspects of a divorce are not enough of a challenge for a couple, the idea of dividing up finances and physical assets certainly can be.

As difficult as that part of the process may be, there is no getting away from it. Both parties will want a fair settlement and that requires close consideration of individually and jointly-held assets. A key aspect of this is tax – in particular, Capital Gains Tax (CGT).

This is a tax on the increased value of a home, company shares, other property, and personal assets between the time they were acquired and disposed of. In the context of divorce and settlement, a disposal happens when the asset is sold or transferred to someone else – including a husband or a wife. The person who owns the asset is liable to pay any CGT due on its sale or transfer. This is an important consideration when reaching a settlement with your former partner.

The good news is that the family home – usually a couple’s most valuable asset – will often not attract CGT. If the parties agree that at least one of them will declare it their main home (their ‘principle private residence’), then CGT is unlikely to be payable if it is sold within 18 months of that person moving out - assuming they choose to move at some stage. If it were to be sold beyond that 18-month period, CGT may be payable then.

Perhaps the biggest issue to be aware of at this time of year is the effect that the tax year has on the applicability of CGT. If you and your partner have been thinking of separating, the optimum time, from a tax perspective, is imminent. April 6th is the key date; if you decide to formally go your separate ways on that date, you have a whole year (to April 5th in the next year) in which to transfer assets between you without CGT applying at that point. That is because the transfers would fall within the tax year of separation and would be classed as ‘no gain/no loss’ because, legally, the marriage is still in place and so you and your ex-partner remain connected. Of course, leaving it later than April 6th would leave you with less time to make the appropriate arrangements before the end of the tax year.

For advice on structuring your affairs to minimise tax liability, contact one of our Family Law solicitors on 01264 353411 or family@bsandi.co.uk. We’ll also help you put in place the best financial settlement on divorce.