Expert Issues Tax Break Warning
A leading Bristol-based family solicitor has warned couples considering a separation that they risk losing valuable tax breaks if they split up now rather than waiting until the start of the new tax year.
Alison Hawes, Partner in the family team at the Bristol office of national law firm, Irwin Mitchell, has alerted couples that they could lose the opportunity to take advantage of tax planning that could be worth thousands of pounds if they transfer assets between them after the end of the financial year in which they separate.
HMRC provide a concession to the CGT rules for separating couples – that in the tax year in which they separate permanently, they can transfer property to each other effectively without paying any CGT. For example, changing ownership of a holiday home or investment will be on a “no loss, no gain” basis. Potentially that could save the couple significant sums of money.
Alison said: “Tax, along with giving an estranged husband or wife a share of any asset, is probably the last thing someone going through a divorce wants to think about.
“It is however an important consideration with potentially significant financial ramifications. A couple that separate now give themselves a very small window in which to transfer valuable assets. My advice to couples would be to try and hold off until 6 April as it gives them a full year to sort out their financial affairs and take full advantage of the benefit.”
Alison points out other tax deadlines that divorcing couples should be aware of. Generally no tax is paid on the sale or transfer of the main family home, since it is exempt from CGT. However, that exemption could only last for 3 years if one co owner moves out of the property when a marriage breaks down.
Alison explained: “This time limit can catch people out. Sometimes they will delay sorting out the financial aspects of a divorce even though they aren’t living together, or will want to keep things as they are for the sake of the children. Three years sounds like a long time, but I have known people who have litigated about other issues and not see this potential problem looming.
“The best advice to give is for couples to make sure that they seek professional advice from a family law specialist who will recognise the potential tax issues and know when to call in an accountant to calculate tax savings.”