Capital Gains Tax
Currently, if a person is married or in a civil partnership, they can transfer assets from one to the other without incurring any capital gains tax (CGT), at least until they separate. After separation, transfers between one spouse to the other is only free from CGT if the transfer occurs in the tax year the parties separate, i.e., before the following 6 April. The rates of CGT will continue at 10% for gains falling in the basic rate band when added to income, and 20% for gains exceeding the higher rate threshold (18% and 28% respectively for gains on residential property).
The Spring Budget 2023 has announced that couples who separate or divorce will no longer be penalised for failing to agree on the transfer of assets in the tax year in which they separate. The government will pass new legislation which will give separating couples a three-year window in which to transfer assets after they separate, or an unlimited amount of time if the assets to be transferred are subject to a formal divorce agreement such as a post-nuptial agreement, or financial remedy order made within divorce proceedings.
Pensions
The current lifetime allowance for most people in the tax year 2022/2023 is £1,073,100. On divorce, if the value of a spouse’s pension pot exceeds the lifetime allowance, this could expose clients to a high tax charge.
One way to share assets on divorce is to split a pension. This has previously allowed those spouses facing a Lifetime Allowance Tax charge to reduce or negate it, as a pension sharing order on divorce will reduce the value of their pension pot below the lifetime allowance limit.
The changes brought in by the Spring Budget 2023 will eradicate the lifetime allowance. This is likely to result in a flood of new money into pension schemes for higher earners as the 55% tax risk is removed and may see an increase in spouses wishing to retain their pensions for themselves. It is important to remember that whilst the lifetime allowance will be eradicated as of April 2024, the tax-free lump sum which can be accessed at age 55 will remain capped at £268,275. This means that any benefits above the tax-free cash level will be subject to income tax.
If you are in the process of negotiating a financial settlement which includes pensions, it is important to seek specialist legal and financial advice in relation to the impact these changes will have on your proposals for settlement, and whether these need to be adjusted in any way.
For further legal advice on what the Spring Budget could mean for your divorce please get in touch with Claire Porter.
Capital Gains Tax
Currently, if a person is married or in a civil partnership, they can transfer assets from one to the other without incurring any capital gains tax (CGT), at least until they separate. After separation, transfers between one spouse to the other is only free from CGT if the transfer occurs in the tax year the parties separate, i.e., before the following 6 April. The rates of CGT will continue at 10% for gains falling in the basic rate band when added to income, and 20% for gains exceeding the higher rate threshold (18% and 28% respectively for gains on residential property).
The Spring Budget 2023 has announced that couples who separate or divorce will no longer be penalised for failing to agree on the transfer of assets in the tax year in which they separate. The government will pass new legislation which will give separating couples a three-year window in which to transfer assets after they separate, or an unlimited amount of time if the assets to be transferred are subject to a formal divorce agreement such as a post-nuptial agreement, or financial remedy order made within divorce proceedings.
Pensions
The current lifetime allowance for most people in the tax year 2022/2023 is £1,073,100. On divorce, if the value of a spouse’s pension pot exceeds the lifetime allowance, this could expose clients to a high tax charge.
One way to share assets on divorce is to split a pension. This has previously allowed those spouses facing a Lifetime Allowance Tax charge to reduce or negate it, as a pension sharing order on divorce will reduce the value of their pension pot below the lifetime allowance limit.
The changes brought in by the Spring Budget 2023 will eradicate the lifetime allowance. This is likely to result in a flood of new money into pension schemes for higher earners as the 55% tax risk is removed and may see an increase in spouses wishing to retain their pensions for themselves. It is important to remember that whilst the lifetime allowance will be eradicated as of April 2024, the tax-free lump sum which can be accessed at age 55 will remain capped at £268,275. This means that any benefits above the tax-free cash level will be subject to income tax.
If you are in the process of negotiating a financial settlement which includes pensions, it is important to seek specialist legal and financial advice in relation to the impact these changes will have on your proposals for settlement, and whether these need to be adjusted in any way.
For further legal advice on what the Spring Budget could mean for your divorce please get in touch with Claire Porter.