My mate says it doesn’t matter how long it takes to transfers assets after I separate from my partner.
We appreciate it is a difficult time to be speaking about dividing your assets, however if you delay you could be subjecting yourself to additional tax liabilities.
You also need to consider the timing and nature of your assets as you could lose previous tax savings if you’re not careful.
Capital Gains Tax:
As a married couple you can benefit from transferring assets between each other as a no-gain/no-loss transfer, so no capital gains tax will be payable.
When you separate you lose the ability to make transfers at no gain/no loss. This means the transfer is made at the original cost value and capital gains tax may be due.
When are you classed as separated?
You and your spouse or civil partner are treated as living together unless you’re separated:
• Under a court order
• If a formal feed of separation is executed
• In circumstances whereby the separation is likely to be permanent
The marriage or civil partnership must have legally broken down. If it hasn’t but you no longer live together, you are still considered as “living together” for Capital Gains Tax purposes.
Year of permanent separation
If you lived together at any point in the tax year, you can transfer assets between you at any time for the remainder of that tax year at no gain/no loss.
If a transfer occurs between you and your spouse / civil partner after the end of the tax year following your domestic separation, there are rules to decide the date of disposal and the amount of proceeds on the sale. These rules depend on your circumstances.
For Capital Gains Tax purposes, connected persons must carry out transfers between themselves at market value. As a married couple, you are still classified as connected until decree absolute is pronounced.
Consider your assets and timings wisely
Here are some examples of consequential outcomes associated with assets and timings regarding tax implications following transfers between separated couples.
Principal private residence relief (PPR) provides an exemption from Capital Gains Tax on the disposal of your main residence.
If you transfer your share of the property within the tax year of separation, it will be on a no-gain/no-loss basis which means that you will avoid paying Capital Gains Tax at that time and are free to make a PPR election on another property.
If the property is sold or transferred after the tax year of separation and you’ve moved out of the property, you may still be able to claim full PPR relief if the transfer takes place within 18 months of moving out (this will reduce to 9 months from April 2020).
Alternatively, you could make a S225B claim. This claim allows the family home to still be treated as your main residence, even if you have moved out; until either the date of transferring the property or the date it ceases to be your ex spouse’s/civil partner’s only or main residence. There is a disadvantage to making this claim if you acquire another residence as you are only allowed relief on one residence so the PPR relief on your new property will be lost.
If you purchased some EIS shares and claimed some or all the 30% Income Tax relief, you need to consider that if you agree to transfer some or all of these shares to your spouse/civil partner as part of the divorce agreement, the relief you have received will be clawed back if you have not held these shares for 3 years.
You will need to consider carefully which assets to transfer and your future tax liabilities associated with the assets you own after divorce.
If you would like to discuss your assets and tax situation, please contact us by phone or email:
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