The taxation implications of divorce will normally not be an initial consideration for the divorcing parties. However, the taxation rules can create unwanted liabilities and we would therefore recommend advice is obtained at the earliest opportunity.
For Capital Gains Tax, transfers can be made at no gain/no loss between spouses and civil partners in the tax year of separation.
Following the tax year of separation, the transfer between the individuals will normally be treated as made at market value, at the date of the transfer.
The family home will normally be a significant part of the family’s wealth and will often be sold or transferred as part of the divorce settlement.
There are special rules to exempt from Capital Gains Tax the family home when it has been the main residence and it qualifies for Private Residence Relief.
The capital gain will be exempt for the period the individual lived in the property and for any qualifying deemed periods, which include the last 9 months of ownership regardless of whether it was occupied during this time as the main residence.
Often in divorce proceedings a spouse may have moved out of the family home but have retained their ownership in it. In these circumstances, a capital gain can arise if the period to disposal is over 9 months, with part of the gain coming into charge.
It is possible for the departing spouse to make a claim so that the property should be treated as continuing to be their main residence until they transfer their interest to the remaining spouse. To make this claim, their interest must be transferred to the spouse who has remained in the property as the main home. It is noted that the departing spouse is unable to make a main residence claim on a new property. The departing spouse will therefore need to consider the financial implications of making the claim, as a gain could then arise when they come to dispose of their new property in the future.
If you would like any specific advice regarding this matter, please do get in touch.
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.