Tax consequences of divorce or separation

At Hughes Fowler Carruthers, we frequently address complex tax matters with our clients, and have good links with tax lawyers and accountants.

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The starting point for separating couples is that after the end of a tax year in which they separate they will be treated as separate for tax purposes under UK law.

Therefore it is advisable that second properties and other assets that will trigger an immediate charge to Capital Gains Tax (CGT) on transfer between unmarried people are transferred in the tax year in which the couple separate.

Payments of capital pursuant to a financial order in divorce and dissolution proceedings are not taxable in the recipient’s hands.  However, if assets other than the family home which is the principal private residence have to be liquidated, then CGT may be payable on the realisation of those assets. Apart from the transfer of a share in the family’s principal private residence, there are few other exemptions to CGT that apply on divorce or dissolution, except in limited circumstances on the transfer of shares in a business.

Capital payments on separation or divorce from one spouse to another rarely attract inheritance tax.

Payments of maintenance, whether to a former spouse or to a child, are not deductible for income tax purposes except in extremely limited circumstances. As they are paid out of taxed income, they are not taxable in the hands of the recipient.  This is in contrast to the situation in a number of other countries, in particular in the USA where maintenance is deductible by the payer and the recipient is taxed.

At Hughes Fowler Carruthers, we frequently address complex tax matters with our clients, and have good links with tax lawyers and accountants where necessary.