Trick or treat: What might Wednesday’s Budget mean for your divorce?

Speculation to date has indicated that any changes are likely to be relatively limited in scope, but this does not mean that tax is not a key consideration in divorce. Indeed, far from it.

In the world of high-net-worth divorce, valuable assets (often located overseas), complex ownership structures (including companies and trusts), and the potential significance of when certain steps are taken (e.g. applying for the final divorce order) all coalesce to form a potent witches’ brew of legal and tax considerations.

The way a financial settlement on divorce is structured can make a huge difference as to what is due to HMRC and foreign tax authorities. Put more plainly, substantial tax liabilities can severely erode the value of a divorce settlement if not managed strategically.

It is, consequently, vital for your tax and finance advisers to work closely with your legal team to ensure that any settlement proposals in respect of divorce are also assessed for tax efficiency: outcomes may be subpar if tax analysis is only conducted after an agreement has already been reached. Similarly, any potential tax reliefs (such as ‘BADR’, i.e. Business Asset Disposal Relief) should also be explored at an early stage, and their eligibility criteria clearly explained to you and kept under review. In many cases, expert tax evidence may also need to be considered by the family court (if the matter is being litigated), for which a formal application for permission will typically need to be made early in the proceedings. 

Tax considerations can be particularly important in determining the timing and structure of transfers between separating spouses. Since 6 April 2023, separating spouses and civil partners can generally make transfers on a no-gain/no-loss basis for up to three tax years after the tax year in which they cease living together, with extended treatment available for transfers made under a formal divorce or separation agreement or court order. The precise treatment will, however, depend upon the circumstances, making early tax advice important.

For couples whose lives are based across jurisdictions, the existence (or not) of any applicable double taxation agreements (‘DTAs’) should also be front of mind. On a related note, the UK’s Foreign Income and Gains (‘FIG’) regime may, for qualifying new UK residents, provide 100% relief on eligible foreign income and gains during their first four years of UK tax residence, provided the relevant conditions are met.

Individuals previously taxed on the remittance basis may also be able to benefit from the Temporary Repatriation Facility (‘TRF’) in relation to qualifying pre-6 April 2025 foreign income and gains. The TRF is available for three tax years, 2025/26 to 2027/28, with a 12% charge applying to qualifying amounts designated in 2025/26 and 2026/27 and 15% in 2027/28. 

This interaction between family and tax advice can be especially significant for expatriates and internationally mobile families whose divorce is being dealt with in England and Wales, but whose pensions, tax residence or wider assets may span several jurisdictions. Close liaison between family lawyers, pensions specialists and private client advisers can therefore be critical to understanding the overall consequences of any proposed settlement.

It is also worth remembering that, from 6 April 2027, most unused pension funds and pension death benefits will be brought within the scope of IHT (Inheritance Tax). That change has obvious implications for wider wealth and succession planning and means that the tax treatment of pensions needs to be considered carefully when assessing the overall financial effect of a divorce settlement. 

For divorcing couples, changes to the tax environment surrounding pensions may affect the assumptions on which different settlement options are assessed and could, in appropriate cases, require advisers and the family courts to look afresh at the overall effect of pension sharing or other orders concerning pension provision. This may be especially relevant where the parties are internationally mobile, or pension assets span different jurisdictions. Whether further pensions measures emerge from this week’s Budget remains to be seen.

New Budget measures will often require legislation before they take effect, and commencement dates vary. The important point for those negotiating financial settlements is therefore not simply what is announced on Wednesday, but what will change, when it will change and whether that affects the assumptions on which a proposed settlement is based.

The High Value Council Tax Surcharge provides another example of why the detail matters. The Government has already announced that, from April 2028, owners of residential property in England valued at £2 million or more will be liable to a new annual surcharge in addition to existing Council Tax. Current Government proposals retain the £2 million threshold, with properties falling into bands attracting different annual charges.

Other topical tax matters over recent months include HMRC’s increased scrutiny of crypto investors, with more than 81,000 communications (letters, emails and text messages) sent to investors in the 2025/26 financial year, almost three times the number sent in 2023/24 (figures as reported by the BBC). Given the surge in popularity that crypto-assets have seen in recent years, it should come as no surprise that they are featuring more frequently, and more prominently, in high-net-worth divorce cases. 

So, whether the Autumn Budget brings tricks or treats, if you are currently involved in, or considering, divorce and its financial consequences, tax advice will very much remain a ‘necessary evil’.

Keep up to date with our Budget coverage

On 28 October, our experts will be providing instant reaction to the key Budget measures on our dedicated hub and our LinkedIn page. And in the following weeks, we’ll have in-depth analysis and advice on how the Chancellor’s measures will affect your business.