Q&A: Is my divorce settlement taxable?
Tax On Divorce » May 20, 2021
Each week we receive numerous enquiries from clients which are usually quite quick to answer. Over the coming weeks, we will be publishing some of the questions received and our answers to them. Please note we have changed some parts of the questions to protect our client’s information.
Question
I am getting in touch with you to find out the following. I have lived in the UK since early summer 2016. I am getting divorced by the end of this month in Paris (last residence). My husband is Finnish and lives in Germany. He is working in Finland, but I am not sure if he does his tax return in Finland or Germany. I assume the last one. For the divorced settlement we have agreed on a singular payment – which I will receive. We are talking of a sum from £295,000. This sum includes spousal support and pension equalisation. My question is, do I have to pay tax on this and if so, I assume this would be in the UK? I don’t live in Paris anymore.
Answer
We can only answer the UK tax side of this question and you should seek advice in Paris. In the UK, the divorce settlement will not be taxable. There are no taxes to pay and you do not need to report the settlement to HMRC.
The only time part of a cash settlement may be taxable is if there is any interest applied to the payment. Sometimes this is done when there is a deferred settlement. If this is the case, the interest element of the settlement will be taxable.
In the UK, divorce settlements, child and spousal maintenance payments are not taxable in the hands of the recipient. You do not need to report them on your tax return or notify HMRC about them.