Much is made of the reliefs available to spouses during the tax year of separation (see Separation & Divorce 6/3/19) but what about afterwards?
Particularly where children are included in the family unit, property can be an important asset in any discussion.
Who will live there? For how long?
In Tax Year of Separation
As mentioned above, where spouses make gifts during the tax year of separation, the asset can transfer with no Capital Gains Tax implications.
After the Tax Year of Separation
If it is the family home that is being gifted, then the normal rules apply. This means that the final eighteen months of ownership are automatically exempt. This reduces to nine months from April 2020.
A further relief is available where a spouse ceases to live in the family home but has not notified an alternative property as their new main residence. This could be because they are staying with family or have moved into rental accommodation. The relief extends the period for which Capital Gains Tax Exemption is available.
Thinking More Long Term
What if the children are young and you want to ensure they retain a roof over their heads, if they are not living with you?
A Mesher Order is a Court Order that transfers the property into a Trust, to be held until an agreed date. The transfer into the Trust is a disposal for Capital Gains Tax but based on the above, reliefs should be available to reduce any tax liability.
The Trust hold the property, usually until the youngest child becomes of age, then the property passes to the resident spouse. If it had been occupied by that spouse throughout the period, then the Trust can have the benefit of exemptions from Capital Gains Tax on the transfer.
As you can see, with careful planning, a divorce does not need to create tax liabilities. If you are being affected by separation or divorce, please get in touch and we will see if we can assist.
Disclaimer: 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.