Capital Gains Tax
Coming to the decision that you wish to separate can be an emotionally difficult situation, but when it comes to dividing up the family finances, it is important to think carefully about the practicalities says Rebecca Silcock, Partner and Family Lawyer at Mogers Drewett
For many of us, tax is one of life’s unfortunate certainties, however during a separation, many people forget that Capital Gains Tax (CGT) could become payable when transferring assets. Once you have used your tax free personal allowance and depending on what rate of tax you pay, CGT could be charged at an eye-watering 28% on any gains, even if you are giving away an asset. When it comes to separation, this means that there will be less money in the pot when dividing the assets.
However, CGT does not need to be paid on assets which are transferred in the tax year of separation. What this means is separating couples have the opportunity to use a tax-free window provided the transfer is made before April 5th of the tax year in which they separated.
What is crucial to this rule is that as soon as you decide to separate, time will start to run. For example, if you decided to separate from your partner in August but wanted to wait until the New Year to sort out the financial situation, then this would only leave you three months in which to come to an agreement and transfer assets. In situations where there are lots of assets and negotiation is required, this would mean the tax window could be lost and CGT could become payable on some of the transfers. This is because it is not enough to have an agreement that the assets are to be transferred, the transfer must have actually taken place.
The rules concerning the matrimonial home are different in that there is a longer period of time for which a transfer can occur without the need to pay CGT; although, it is still important to seek advice on this point as soon as you separate. However, in cases where a couple have additional properties or business assets, time is crucial in order to maximise the funds which can be distributed.
So, for couple who are thinking about separation, the date on which this is done is an important consideration as it could be crucial for tax saving.
For further information or advice on this subject please see www.md-solicitors.co.uk or call 01749 342 323