What are the tax implications of separation and divorce?

What are the tax implications of divorce?

With changes coming into play from 6 April 2023, Helen Gale highlights below how these changes aim to remove some of the burdens faced by many divorcing couples. These changes will benefit those couples going through the stress of separation and provide much needed time to transfer assets.

Being married or in a civil partnership has an advantage when it comes to capital gains tax.  Normally, when one person transfers an asset to another, there is potentially a charge to capital gains tax.  However, the transfer of any asset between the parties in a marriage or civil partnership will not incur a charge to capital gains tax. 

Previously, that benefit was only available up until the end of the tax year in which the couple separated e.g. if the couple separate on 5 September 2021, only assets transferred before 5 April 2022 would be covered.  As the formal process of divorce could likely run beyond the start of the next tax year, the transfer of assets after the 5 April 2022 would have been chargeable to tax.

New rules come into play from 6 April 2023 to extend the period to three years starting with the year of separation e.g. if the date of separation is 20 October 2023 the couple have until 5 April 2026 to make transfers without incurring capital gains tax.  This gives separating spouses and civil partners much more time to plan the disposal of their assets.

It is important to seek professional advice early on in the separation process to help avoid unexpected tax bills and also to keep you up to speed with any changes to the proposals before they are enacted in the 2022-23 Finance Bill.

How can Haines Watts help?

We advise clients with a broad range of tax and compliance matters throughout the South West region.

If you would like to have a conversation to understand the complexities of the above, please get in touch with your usual Haines Watts contact.