HMRC have published draft legislation to change the rules on the transfer of assets between spouses and civil partners who are in the process of separating and are no longer living together
Under the present law, spouses and civil partners are able to transfer assets between themselves at no gain no loss for capital gains tax (CGT) purposes, up to, and including, the year of permanent separation. After the year of permanent separation, any transfer of assets is subject to CGT with the deemed disposal proceeds being the market value of the asset. This tends to mean that by the time of a divorce or a dissolution of a civil partnership, CGT liabilities can arise when assets are transferred as part of the financial settlement.
Last year, the Government introduced more favourable tax rules. The separating spouses or civil partners will be given:
The proposals are intended to provide valuable time for spouses and civil partners in the process of separating to organise their financial affairs without unwelcome CGT liabilities, which is positive news.
For families and their advisers, the proposed changes create some helpful tax outcomes including:
Although the proposals are welcome, separating couples will need still need to consider the tax consequences of their proposed financial settlement where other asset disposals are envisaged, including in the following scenarios:
In summary, when considering the financial order and the split of assets between a separating couple, it is vital to consider the tax position of the couple in detail as tax can still reduce the total value of the assets to be divided between the parties. In most circumstances it will be important to understand any latent capital gains within the assets to ensure there is an equitable split of value.
For example, husband and wife, own a property portfolio and it has been agreed, upon divorce, the husband will be the sole owner of a property worth £500,0000 which was originally acquired for £100,000 and the wife will be the sole owner of a property worth £500,000 with an acquisition cost of £300,000. If all things remain equal, on a future sale of the properties the husband will have a larger capital gains tax liability due to the lower acquisition cost.
At Duncan Lewis Solicitors, our Family department comprises of lawyers specialised in handling cases involving High Net Worth individuals. We can provide expert legal advice to help you determine whether the assets in a specific trust are likely to be considered as part of the marital estate, eligible for division between the parties, or if they are more likely to be considered non-matrimonial and excluded from the division. Our team of High Net Worth Divorce Solicitors are dedicated to assisting you with all aspects related to divorce or separation.
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If you need guidance and support in navigating the complexities of separating financial and ownership structures during a high net worth divorce, get in touch with Amanda Willmore via email AmandaJ@duncanlewis.com or via telephone on 02070147305.