Separation & Divorce

Expert tax advice delivered sensitively, supporting you through the uncertainty of separation and divorce

Understanding your needs

We understand that the process of separation and divorce is both and time consuming, and that considering the tax implications of restructuring your familial assets will often be low in priority.

With increasingly complex legislation, unexpected tax implications can often arise during the process of dividing assets between parties, and this can reduce your overall familial wealth.

Working with you and alongside your legal advisers, our team of private client tax experts will ensure that the division of assets is structured tax efficiently, whilst achieving your overall objectives.

Our people, your partners

Our aim is to provide you with the support necessary to alleviate the pressures of separation and divorce. We do this through partner-led technically astute advice, delivered sensitively by our team of experienced private client advisers.

Working closely with you, we will guide you through the financial complexities that separation and divorce can entail, with particular focus on the tax implications of transferring assets as part of your proceedings.

Our advisers provide accredited Expert Witness support and frequently work with family lawyers to provide resolution towards a tax efficient separation of the family assets.

Following settlement, we can also advise on your longer term tax planning and compliance needs, looking ahead to the future.

We can also provide support in producing valuations of corporate and business interests, to be used in divorce proceedings.

Tax implications of divorce and separation proceedings

The US and UK tax implications of divorce and separation

Alex Foster and Rob Burgess discuss the fundamental differences between the tax systems when it comes to divorce and separation in the US and the UK

They explore the rules around Inheritance Tax and Capital Gains Tax, consider taxable and non-taxable transfers and provide a helpful overview of how we can support clients and work alongside legal advisors to navigate tax planning across two different jurisdictions.

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Understanding the tax implications which may arise on the transfer of assets as a result of divorce can be a complicated area and is something individuals and their legal teams need to be aware of.

For US citizens who live in the UK, or hold certain UK situs assets, there is the additional complexity of needing to navigate two tax systems simultaneously as assets are transferred between parties or sold.

In the UK, individuals can transfer assets between spouses on a no gain/no loss basis until the end of the tax year of separation and the following three years.

Additionally, there is no time limit on tax-free transfers where the transfer is made under a formal divorce agreement. However, where the divorcing couple includes a US person and a non-US person, there will be a taxable event in the US if the asset transferred has appreciated in value. Conversely, where both parties are US people there may not be an immediate tax charge upon transfer, but as for the UK, consideration is needed for the inherent tax liabilities associated with any assets transferred.

Understanding the true ‘net of tax’ value of the matrimonial assets, as well as avoiding a number of pitfalls which exist in both tax systems is fundamental to ensuring individuals achieve the desired impact of a financial settlement.

Divorce and Financial Settlements – US & UK Tax on the Marital Home

Sell, transfer or stay?

The family home can be one of the largest matrimonial assets for a couple to consider during a divorce or separation.

Ed Rieu and Suzanne Briggs discuss financial settlements on divorce or separations and the tax implications for married couples and civil partners when dividing their assets from both a UK and US perspective.

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In the UK, following changes to the legislation in April 2023, it is possible to transfer assets between spouses on a no gain/no loss basis up to the end of the tax year of separation and the following three years or without a time limit where the transfer is made under a formal divorce agreement. In addition, main residence relief was also extended so that in certain circumstances, a former spouse or civil partner can still be eligible for main residence relief on a future sale or deferred charge agreement.

In the US, there is a far lesser tax relief than the main residence relief in the UK, this being an exclusion of $250,000 on the gain realised upon disposal of the main residence. Evidently, a mismatch can therefore exist where there is full tax relief in the UK, but a taxable gain in the US which would be subject to US Capital Gains Tax (CGT) and Net Investment Income Tax (NIIT). Note a transfer between spouses pursuant to a divorce should not create a US taxable gain.

However, where one of the parties to the marriage is a US person and the other is not, then matters can get more complicated as there is no exemption for transfers from a US person to a non-UK person for US tax purposes. In addition, currency fluctuation between purchase and transfer can result in unexpected US tax and filing obligations.

Divorce, separation and the family business – US & UK Tax on the Family Business

Does your divorce or separation also involve a family business?

Spouses or civil partners can be shareholders, directors or business partners so the impact of a divorce or separation proceedings on a family business can have direct consequences.

Mark Levitt and Ed Rieu discuss the options available to separating couples both in the US and UK and debate the tax implications of selling or transferring a family business as well as buying out your spouse or civil partner.

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When a couple get divorced quite often the last thing that they will be thinking about is whether there are any tax considerations to the transfers of assets between them.

Where a divorcing couple has a family business, it can be a significant portion of the overall marital estate. As a result, it may be necessary to access some or all the value of the enterprise be it a corporation, partnership or sole proprietorship.

Where one or both parties in the divorce are US citizens or Green Card holders, the US (as well as UK) tax implications of any settlement involving the family business will need to be considered. Transfers where both parties are US citizens should not result in US tax on any built-in gain. However, where one of the parties is not a US citizen, the US tax issues can become more complicated.

On disposal of certain interests in a family business, the UK may allow for a favourable 10% capital gain rate on the first £1m of gain. The US has no such allowance. Where a US person disposes of interests in certain US companies, the built-in gain is exempt from taxation even when transferred by a US citizen to a non-citizen spouse pursuant to a divorce decree. The UK has no such exemption.

How we can help

Our services include advice on the following issues:

The tax implications of the transfer of assets between the parties and how to structure these tax efficiently.
Corporate restructuring and the associated tax implications.
UK tax advice for non-UK domiciled individuals, including the restructuring of offshore trusts and how overseas monies can be used efficiently
Advice in relation to making timely and appropriate elections.
Resolving tax irregularities with HMRC.
Cross-border tax considerations with assets in multiple countries.

Would you like to know more?

If you would like to discuss how the above may affect you and your tax affairs, please get in touch with your usual Blick Rothenberg contact, or one of the team using the form below.