Property and divorce is always a complex issue, and due to such complexities, tax aspects are often neglected. Consequently, the focus of this article is the specific tax implications that may occur when going through a divorce or separation.

The first subject is capital gains tax, and the inter-spousal exemption – this ceases at the end of the tax year following permanent separation, not on divorce. Therefore, although not practical for most couples, it is best to divide property before 5th April as this creates optimum tax savings and creates more time to organise further financial arrangements.

The family home will qualify as being capital gains tax free on transfer if it has been the couple’s main residence throughout the entire period of ownership. This is due to what’s called, Principal Private Residence Relief. Such relief can be extended in certain circumstances if the family home has not always been the main residence. For example, the last 18 months of ownership (nine months from 6 April 2020) are always tax free if the house has been the couple’s main residence at some stage.

The Principal Private Residence Relief can be further extended by “special relief” which can either reduce or eliminate the tax bill on transferring the family home on divorce – this is subject to certain criteria, however. Furthermore, “mesher” orders can be considered where one party wants to stay in the home and the other party retains an interest in the property than lose their interest in the long term equity growth.

As is regularly the case in regards to property, inheritance tax is an important issue. IHT transfers between spouses are exempt right up until the final annulment of the marriage or civil partnership. In addition, transfers made on divorce, or for the maintenance of the family, are exempt from inheritance tax.

As with all tax planning, we recommend anyone who is separated or, is going through the divorce process, to take the professional advice as soon as possible.

If you require further advice in this area, please contact me on 01865 292 243 or email me at david.rickwood@shawgibbs.com to arrange a complimentary one hour meeting.