Capital Gains Tax & Divorce
This is probably the headline tax when thinking about tax on divorce and is becoming ever more critical with the main home relief absence periods halving from 18 months to 9 months and the new payment window of 30 days. Tax advice should always be sought when couples are proposing to sell or transfer their assets as part of a separation or divorce. Initially the first step is to quantify the potential liability, then we can look to see how best to mitigate against the charge.
Capital gains tax advice on assets, investments, and properties
Capital gains tax is the tax payable when an individual sells or transfers a chargeable asset. For divorcing couples this tax needs to be considered early on so that net values can be determined and any reliefs or exemptions can be protected and claimed. The allowances and relief that can be claimed change regularly with legislation and rates can vary from 10% to 28%.
From April 2020 CGT will be payable within 30 days from the date of the transaction. At the moment this applies whether or not the individual actually has funds to pay the tax. This is a monumental shift for divorcing couples who previous have had up to 18 months from the date of the transfer to settle a liability. We can work with your clients and HMRC to either find an appropriate relief to reduce the tax or create an approved payment plan with HMRC if this is required.
Our service is all about complimenting the service that family lawyers offer their clients. We are here to provide up-to-date CGT computations, advise about reliefs, time frames and tax pitfalls of certain arrangements. We can be instructed at the start of proceedings to review Form E’s or we can complete reviews of Draft Consent Orders to ensure the language correctly captures the potential indemnities required from a tax perspective.
Main home
The main home is often one of the major financial assets in a marriage. The main home tax relief predominantly applies when an individual owns the home and is occupying the home. If an individual moves out of the home, from April 2020 their main home exemption will apply for only 9 months. This effectively means that individual who has moved out of the marital home has 9 months to sell or transfer the property before they have to start planning for a CGT liability. There are two notable exemptions which can apply to divorcing couples and there are further extra statutory concessions which can allow for certain period of deemed occupation even if the individual was absent from the property.
Investment properties
From portfolios of 40+ properties to the accidental landlord, CGT is going to apply. Once a married couple is outside of the tax year of separation any transfers between them will take place at deemed market value. This means the party disposing of the asset will be deemed to have sold their portion for the market value and assessed to CGT on this gain.
There are several reliefs that may be available to reduce the gain. Also careful review of the properties to understand if any losses can be utilised will be vital.
Shares
If an individual needs to cash out their investment to fund a settlement they will be liable to CGT on any gain they make.
Some shares are kept in protective wrappers in which case the gain may be deferred or exempt from tax altogether.
For shares in a personal company, Entrepreneur’s Relief should be considered early on to ensure that the conditions for the relief will continue to be met at the point of the disposal.
How we work
You can instruct Sofia as a Single Joint Expert on CGT cases to provide advice on taxes, payable reliefs and exemptions available and time to pay arrangements (if required).
If an SJE instruction is not appropriate Sofia can engage with your client directly to provide CGT advice and can further complete all the necessary filings if required. We understand that many different proposals will be deliberated and we are on hand to comment on the potential tax implications of any change of transfer, or even change of values. Further, our engagement letters stipulate that our clients solicitors and barristers can rely on our advice given.
