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Divorce & Separation

There's a lot to consider when it comes to advising a client through divorce or separation.

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Help your clients through separation and divorce

Start the conversation with this guide.

Transferring assets

Tax on divorce is an area that most people probably don’t think about. But, it’s important that a client understands the impact to their individual tax situation when it comes to splitting/transferring assets.

Capital Gains Tax (CGT)

After a divorce has been finalised, ex-spouses may be liable to pay CGT on transferring their assets.  As each individual has an annual exempt amount of £12,000 (2019/20), anything over this amount may be subject to these CGT.

The inter-spouse CGT free relief applies to separating couples but only until the end of the tax year of permanent separation and after that the relief is lost.

Asset Basic Rate Tax Payers High Rate Tax Payers
Property 18% 28%
Other (excluding disposal of cars, currency and belonging with a value of less than £6,000) 10% 20%

Inheritance Tax (IHT)

Transfers between spouses are exempt from IHT. However, after a divorce has been finalised transfers between ex-spouses are treated as Potentially Exempt Transfers and will usually be exempt from IHT if the donor survives 7 years.

Although it is possible to transfer any unused percentage of the IHT nil rate band (NRB) from a deceased spouse or civil partner to the surviving spouse or civil partner, no transfer is possible where the first death occurs after the couple have divorced.

© Prudential 2020