K J Smith Solicitors

Can capital gains tax effect your decision of when to separate?

Published: 1 April 2015

When a marriage or civil partnership is on the verge of a breakdown it can be a very stressful time for all parties involved. With so many aspects to consider, such as the division of assets, future housing and employment and issues surrounding the children, the last thing on your mind will be the tax implications of your separation.

However, if you are thinking of separating from your partner, it might be worth considering postponing your separation until the start of the new tax year, as it could potentially save you thousands of pounds by significantly reducing or avoiding Capital Gains Tax (CGT) liability.

Capital Gains Tax potentially occurs when you make a 'gain' on an asset that you “dispose” of either  by gifting to another person or people, transfer or sale. Every individual has an annual CGT free allowance of £11,000, so if your gains for the tax year exceed the tax-free amount, you will be required to pay CGT at the current rate of 18% (for the basic taxpayer rate) or 28% (for those paying the higher taxpayer rate).

If you transfer your interest in property to your spouse during your marriage CGT does not apply as it is classed on a 'no gain, no loss' basis and falls under the spousal exemption. However, this benefit disappears once a couple separates permanently - but only at the end of the tax year following the separation.

Problems can occur when trying to identify the exact date of permanent separation, as many couples can live together under the same roof but class their relationship status as separated and some can live separately but class themselves as still being together.

Any delay in resolving your financial issues with your spouse could potentially increase your tax liability once the property or assets have been dealt with, so it is essential that you seek professional advice on the best way to proceed to ensure a positive outcome for all parties involved.

Senior Solicitor at K J Smith Suzanne Foster said, "Often there is barely sufficient capital to meet the needs of both parties and the children.  Why reduce what might be available by paying CGT when you might not have to?  Separating at the start of the financial year means you have a full 12 months to deal with finances and reach a settlement involving the disposal of assests, this will have the effect of a least taking some of the strain away from an already stressful and emotional situation."

If you are thinking about separation or divorce then the team at K J Smith Solicitors can help. Our experienced team of family law specialists work with you to deliver practical solutions and positive outcomes for you and your family. For more information or to arrange your free 45 min consultation, contact K J Smith Solicitors today on 01491 630000 (Henley on Thames), 020 7070 0330 (London), 0118 418 1000 (Reading), 01753 325000 (Windsor) or 01256 584000 (Basingstoke) or email info@kjsmith.co.uk.

This article was written by Suzanne Foster.

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