Wait until the new tax year before separating… Family law

Anyone thinking of separation and divorce might be better off waiting until the new tax year starts on or after 6 April 2019, according to Thursfields Solicitors.

The warning is focused on the potential impact of Capital Gains Tax (CGT), the tax on the profit when you sell or dispose of assets that have increased in value, costing up to 28% of gains from property sales, or up to 20% of gains from other assets.

Susanne Leach, Associate Solicitor in the Family department in Thursfields’ Kidderminster office, explained: “Up to and including the tax year of separation only, the transfer of assets between spouses is exempt from CGT as ‘connected parties’ with no gain and no loss.

That’s the position until Decree Absolute, even though you may no longer be living together at the time of the transfer, and applies to assets such as an interest in a rental property or holiday home, investments or shares in a family business between husband and wife.

After the tax year of separation, the transfer of assets between spouses will usually be treated as a ‘transfer at market value’, which means any gain in value since the asset was acquired may be liable for CGT.”

Susanne pointed out that potential CGT is not only significant to the overall assets but will also raise the question of who’s responsible for any liability, making the timing of divorce petitions a potentially crucial matter.

She said: “It may be disadvantageous to separate in March if the transfer of assets between you may give rise to CGT, given only a few weeks of the current tax year are left.

The date of separation is a factual issue, and there may be an advantage to separating and issuing divorce proceedings early in the tax year to give time to reach a financial settlement, including a transfer of any assets which may attract CGT.”

For further advice Susanne can be called on 01562 512428 or emailed at sleach@thursfields.co.uk