With 31 January looming once again and lots of us finalising our tax returns, few people realise that there is also a date approaching for those who have to consider the tax consequences of divorce.
If you find yourself in the difficult situation of a separation or divorce, probably the last thing on your mind are the taxation consequences.
An experienced divorce solicitor should be able to identify the various circumstances that arise on divorce which can lead to significant tax liabilities. Such liabilities are most likely to arise if your settlement involves a business or property which is not the family home.
Whether it is income tax or capital gains tax that arises we have to identify, during any financial settlement upon divorce, who is going to pay what amount of tax and when. Payment of a tax liability can significantly reduce the value of an asset accepted within a settlement if not properly taken into account.
If any reliefs can be claimed or action taken at an early stage of separation to reduce the overall taxation burden for the spouses, ie to maximise the assets available for division, then an experienced divorce solicitor should be able to raise this at an early stage. We often work alongside your accountant to achieve the best result.
Sometimes there is a need to consider transferring assets (such as shares in a business or a property which is not the family home) between spouses before the end of the tax year of separation - up to 5 April each year - to defer the payment of the tax liability.
To be clear about what is the tax year of separation - if you separate on 1 April, you have only a few days to address the tax implications that might arise on divorce ie until the tax year ends in early April. If you separate on 7 April you have almost a whole year to address those issues ie until the start of the new tax year the following year!
It may seem complex but that is the value added by an experienced divorce solicitor ie one that is used to dealing with complex assets and tax liabilities.
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