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Kirk Rice Blog

Separation & Divorce Tax ImplicationsWritten on October 20, 2020 by Kirk Rice LLP

Separation & Divorce Tax Implications
Taxing Times Questions

The Question:

Due to Covid and lockdown, my wife and I have had issues and have decided to separate and apply for a divorce. We have a jointly owned marital home and buy to let properties, some of which are jointly owned, and some are owned solely by my wife and me. I want to know the capital gains tax implications of moving some of the properties into our respective sole names.

Kirk Rice LLP answers:

Separation and divorce are a stressful time for both parties in a marriage, and sometimes tax is the last thing on their minds. However, it is essential that as part of the separation process, the couple plan their affairs to move assets between them tax-efficiently; otherwise, it could be quite costly.

The capital gains on the transfer of any properties depend on when the properties are transferred, and if you and your wife are treated as connected or not at that time. The rules are as follows:

  • If the transfer is in the tax year of separation, then there is no capital gain/ or a capital loss.
  • If the transfer is after the year of separation but before the grant of Decree Absolute then you are still treated as connected, so transfers between you are deemed to be at market value and any gain arising would be taxable.
  • If the transfer is after the grant of Decree Absolute, then you are not connected, and the actual consideration is used to compute the capital gain.

Of course, any capital gain arising on the marital home is exempt providing that it was both parties’ principal residence throughout their period of ownership plus the last nine months. Thus, if the party leaving the marital home sells their share to the other party within nine months of that date, and this is after the year of separation, then any gain arising would be exempt.

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Providing certain conditions are met, properties can be exchanged between joint owners whereby after the exchange each party would be the sole owner of a previously jointly held property, and any gains arising can be rolled over. Therefore, provided you and your wife satisfy the relevant conditions, you both could exchange some of the jointly held properties in your sole names with no immediate capital gains tax liabilities.

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Any reader interested in discussing separation and divorce tax implications further can telephone 01344 875 000 or email info@kirkrice.co.uk to arrange a call.

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.

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