Tax implications on divorce in the UK

Although the financial impact of divorce is something that the parties are likely to expect, often the tax implications are not something that is initially considered. However, any change in circumstances can affect your tax liabilities and so it is very important to get advice at an early stage about the impact that your divorce will have in relation to tax. Where there is an international element involved, the tax implications can be even more complicated. 

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When formulating a divorce settlement, it’s essential to consider Income Tax, Capital Gains Tax (CGT), and Inheritance Tax (IHT) and Stamp Duty Land Tax (SDLT). These taxes also play a crucial role in determining the future tax positions of both parties once the settlement is finalised.

For tax purposes, the key date is typically when the couple permanently ceases to live together or is separated under a court order. They don’t necessarily need to live in separate homes, as factors such as the impact on children might prevent this. Conversely, living in separate homes doesn’t automatically mean they are separated for tax purposes; it might simply be a matter of convenience due to lifestyle or job opportunities.

The importance is that: divorces lead to assets being divided between the parties, and the timing of these transactions can lead to various tax liabilities. A well-drafted settlement can help to minimise some of these liabilities during this potentially turbulent time.