Why delaying marriage split may save divorcing couples costly tax bill

Tax rules coming into effect from April will give separating couples more time to divide or sell assets.

Any couples currently in the middle of a break-up could, therefore, save themselves a major tax bill by delaying the financial fallout by a few months, according to legal firm Gilson Gray.

“Divorce Day” – the most common day of the year for couples to launch legal steps to end a marriage – is looming in January.

And with less than six months until the tax year ends, many couples breaking up will now be feeling the pressure to transfer or sell assets to prevent capital gains liabilities.

Spouses and civil partners can transfer assets between one another without any capital gains tax (CGT) being payable, but this applies only if the switch takes place in the same tax year they separate.

But new rules being introduced from April 6 will extend the period for transferring assets without incurring CGT to three years after the end of the tax year in which they separate, or indefinitely if there is a properly drafted separation agreement in place.

The extension will also bring about significant changes to the rules around selling a family home.

Currently, a spouse who moves out has a ninemonth window to sell their interest before CGT applies to proceeds from the sale.

From April they will be able to retain an interest in the property, receive a percentage of the proceeds when it is sold and apply private residence tax relief.

Denise Laverty, partner and specialist divorce lawyer at Gilson Gray, said: “The new tax rules are designed to make the process of spouses and civil partners dividing assets between them a fairer and more flexible process.

“Anyone going through this process now should take advice on whether to delay selling or transferring any assets until they come into effect.

“Under the current regime, couples with, for example, investment portfolio or buy-to-let properties held in joint names might be hit with a large tax bill for simply transferring these assets between them, depending on when they separate.

“Waiting until April could relieve the pressure to make decisions too quickly and give them more time to fully consider how best to divide their assets.”

Ms Laverty added: “In other cases, and with mortgage rates rising, more couples may want to consider a deferred sale of their home.

“The new tax regime will not penalise the person who has moved out of their property.

“It will also help couples in more complex financial negotiations.

“They will have more time to consider their options, instead of rushing decisions purely to minimise capital gains liabilities.”

MORE TIME: Couples who are planning to divorce will be given three years to transfer assets without incurring capital gains tax – so long as they wait until April 6 when the rules change.

Denise Laverty.