Tax on Divorce
At Juno Family we understand the myriad of factors which are involved in the divorce process. Tax is just one element which needs to be considered, however we believe it’s an important consideration to be factored into proceedings at an early stage. We aim to provide straightforward advice on a range of complex UK tax issues whether that be through expert instruction or single joint expert instruction.
Working together: tax implications of separation or divorce
Single joint expert
Our usual turnaround time is 20 – 25 working days. Examples of SJE we have been instructed on in the past year include:
- Investment property/rollover relief on sale or transfer of properties
- Capital gains tax implication on selling or transferring the main home
- Tax implications of a Mesher Order versus a Deferred Charge
- Tax implications of distributing a property portfolio
- Review of complex earnings structures to establish net income
Expert instruction
We can be instructed as an expert to work with just one party, through the solicitors firm and we provide complete transparency to ensure the solicitor or barrister can also rely on the advice given.
Our usual turnaround time is 20 – 25 working days, although this work usually requires a longer engagement to assist in implementing the advice. Examples of expert instructions we have been instructed on in the past year include:
- Review of pension sharing order, lifetime allowance breach
- Tax implications of offshore assets and income
- Analysis of complex earnings structures
- Availability and preservation of Entrepreneur’s Relief
- Transfer of assets in Schedule 1 separation
- Tax Implications of a ToLATA claim
- UK tax implications of US trusts
Tax implications
It’s critical to understand and quantify the tax implications of a past action early on in the proceedings. Even if your client is not currently concerned it would be prudent for them to seek advice about the legitimacy of the planning or the likely outcome of an investigation, primarily to ensure that if tax is payable it is paid from the marital pot and not a single liability many years after the separation.
A few examples of where a client’s prior actions may require a tax expert include:
- HMRC investigations
- DOTAS Schemes
- Previous aggressive tax planning
Future tax implications
Divorce and separation invariably results in assets being sold or transferred. Selling and transferring assets are both possible chargeable events for capital gains tax. There are also other taxes to consider such as income tax, lifetime allowance charges and possible stamp duty implications (particularly on separation). A few examples of times future tax implications may require a tax expert include:
- Selling or transferring the main home
- Investment properties
- Pension sharing
- Business sharing
- Selling of assets
Quantifying net values
One of the first things that needs to be understood for financial remedy proceedings is the actual values that you are working with. For an employee with no other income this may be relatively straight forward. However, in many situations, arriving at the net income often requires a few different computations.
A few examples of when identifying the net income may require a tax expert include:
- Income of a sole trader/partnership
- Rental income
- Dividend income
- Net gain
Your tax position
Whilst working with a client it may become apparent that their tax affairs are not as up to date as they should be. There have been a few changes in recent years regarding reporting obligations and penalties. For example from September 2018 if an individual has failed to disclose overseas income or gains, they could face penalties of up to 200%. If your client is unsure about the health of their tax position it would be wise to seek expert advice. If this is done early on in the proceedings it may be possible to take this into consideration for the financial proceedings. Some examples of positions which we see becoming increasingly common are:
- Failure to report overseas income or gains
- Pensions annual allowance charge
- Incorrect spousal filing (dividends reported but not paid)
