Marriage breakdown, separation and divorce can have quite significant tax implications. The most important areas to consider are:
- available tax allowances
- transfers of assets between spouses.
An important element in tax planning on marriage breakdown involves the payment of maintenance. No tax relief is usually due on maintenance payments.
The transfer of Assets
Quite often marriage breakdowns involve the transfer of assets between husbands and wives. Careful planning on the timing of any such transfers can avoid or mitigate adverse CGT consequences.
If an asset is transferred between a husband and wife who are living together, the asset is deemed to be transferred at a price that does not give rise to a gain or a loss. This treatment continues up to the end of the tax year in which the separation takes place. Therefore, where transfers take place after the end of the tax year of separation, but before the divorce, the CGT implications can be significant. However, gifts holdover relief is usually available on transfers of qualifying assets under a Court Order.
On the other hand, if transfers take place before the granting of a decree absolute on divorce, IHT will not cause a problem. Transfers after this date may still not be a problem as often there is no gratuitous intent.