Divorce: Capital gains tax

Advice from a tax advisor can be sought jointly, whether you are discussing matters direct with your spouse, in mediation or via solicitors. In court proceedings, a Judge can direct that a single joint expert prepares a report and calculations as to your and your spouse’s anticipated capital gains tax liabilities.

Our top tips for considering Capital Gains Tax on divorce

1. Once you have an agreed value for assets, decide how tax advice should be sought. If use of a longstanding advisor of the family is not agreed, then agree on the identity of an independent tax advisor before you incur the costs of the advice. Joint instructions, mean that you should seek agreement from the other party on the detail of the instructions before asking the tax advisor to start work.
2. Family Home

• Don’t assume that capital gains tax automatically doesn’t apply because it was the matrimonial/family home;
• Find out what your potential capital gains tax liability is in the event of a disposal of your interest in the home (even if you’ve not reached agreement on what should happen to it);
• If you’ve moved out of the family home, check with your accountant whether you should be making an election of your Private Residence to HMRC. Weigh up the pros and cons of this, particularly if you’ve bought a new home in the midst of divorce.

3. Investment properties

• Find out what your potential capital gains tax liability is in the event of a disposal of your interest in the property (even if your position is that you should keep this asset);
• Remember that whilst an inter-spousal transfer may mean you don’t pay tax now, the tax payable on the gain is deferred until the owner later disposes of the property (latent capital gains tax liability).

4. Other assets

• Don’t forget that the increase in value of other assets, can give rise to a capital gains tax liability. A helpful starting point is the gov.uk website and examples include:-

1. 1. Shares that are not in an ISA or PEP
   2. Business assets
   3. Personal possessions worth over £6,000 (and you make a profit when you sell)
   4. Cryptocurrency

The figures you use in negotiations and as part of an asset schedule should be net figures i.e. the gross value less any mortgage/loans secured on the asset, the tax payable on disposal of that asset and costs of sale (i.e. agents/ conveyancing solicitor costs). Achieving the full financial picture is essential when you negotiate a settlement and your interests are best served by ensuring that the figures you base your negotiations on are as accurate as possible.

We strongly advise our clients to take tax advice before entering into property transactions, even if a plan of action has already been agreed with their ex-partner/spouse.

How can Ellis Jones help?

Our experts are specialists in negotiating financial settlements on divorce and for separating couples who are not married. Should you need further advice, please call our Family team on 01202 636223 or email MatrimonialDept@ellisjones.co.uk .