Tax Issues for Family Law Clients

The family team at IBB recently had a very informative update from Sehjal Gupta, one of the Private Client Tax Directors at Menzies LLP.

We were provided with a helpful update on the new CGT rules relating to residential property which came into effect in April 2020.

When you are considering divorce and looking at the associated financial decisions it is always important to consider CGT early in the process. You should take advice before you move out of the matrimonial home or as early as you can as to the likelihood of CGT applying.

Assets will transfer between spouses in the tax year of separation with no CGT arising (no gain/no loss). However, following the tax year of separation matters are very different especially where assets are being sold between spouses. If you are separating you may want to think carefully as to how this issue might apply to you especially if it is your intention to purchase another property on separation.  There may also be stamp duty implications when buying a second home.

Since April 2020, if you move out of the matrimonial home the clock begins to countdown on the final period exemption and the rule change means that you will only have 9 months, reduced from 18 months, to sell an interest in the property before CGT applies. The rate of CGT on the disposal of residential property will be between 18% and 28% if you are a higher rate taxpayer. As divorces are taking longer due to Court delays, this could be costly so needs consideration at the outset. This could also have implications if you are moving out of the property and your spouse delays a settlement. Understanding the financial implications will no doubt encourage sensible discussions at an early stage.

A new standalone online return will need to be filed along with the payment of the CGT within 30 days of the completion of the transfer to avoid penalties and interest accruing. This really does not give the party disposing of the property long at all to prepare, submit and pay any CGT due.

As family law experts our role is to know when not to advise on a specific subject and signpost our clients to the correct experts. We can provide expert advice because we also surround ourselves with other experts in their field. IBB family law clients will be advised to get tax advice from the outset. If clients do not have their own accountants, we make a recommendation.

Speak to our family law experts today.

IBB Law’s family law practice can provide expert advice on all children law issues. To contact the family law team please email familylaw@ibblaw.co.uk or call 03456 381381.