Most Common Questions
Tax On Divorce » December 17, 2021
As the year is drawing to a close, we have looked back through some of the most common ‘simple’ questions we have received from clients and solicitors.
Clients
- Do I pay tax on my divorce settlement?
No, there is no tax payable on divorce settlements. If your settlement is funded by sale of say a property, then capital gains tax may be payable on the sale of the property. Also, if you have a deferred settlement and interest is payable on this, the interest will be subject to income tax.
- I got divorced overseas, can I bring the settlement to the UK?
Yes, you can remit (bring) this money into the UK without incurring a tax charge.
- We’re not sure if we are going to get divorced but do we need to do any tax planning at this stage?
This is becoming a really common query amongst couples who are in their 50s+ and have been living separate lives but are not sure if divorce is something they want to proceed with. Usually, the best advice is to save all decisions until 6 April so that if they do proceed with separation, they will have the full tax year to complete any transfers. If there is a business in the marriage, there is some effective tax planning that requires more than just one year and this might be something they consider ahead of official separation.
- I am moving out of the family home into rented accommodation, but I am not buying another main home, will the gain on sale still get full relief?
Main home or Principal Private Residence (PPR) relief is available primarily if you meet two tests. The first test is that you must own the home and the second test is that you have been living in the home for the whole period of ownership. If you sell or transfer the home within nine months of leaving the home, there will be no capital gains tax to pay. If you have been out of the home for more than nine months (either in rented accommodation or elsewhere), the period of time that you have been absent from the home will be subject to capital gains tax. There are some further reliefs that may apply, however, if you take no action you are likely to have a capital gains tax liability.
- My husband has received advice that he will have to pay capital gains tax when he transfers assets to me. If he doesn’t pay this, will HMRC look to recover the tax from me?
In short, no. The UK has a (mostly) independent taxation system. If your ex-spouse has a tax liability on a transfer or sale, HMRC can only recover this tax from them. The tax will not pass on to you or the asset transferred.
If you and your ex-spouse were in business together, different rules apply. In certain circumstances HMRC can seek to recover taxes from all directors of a company. You should seek further advice if you are concerned about this.