Tax in divorce

Is there capital gains tax when assets are transferred between spouses?

Spouses who live together can transfer assets between them on a "no gain, no loss" basis, meaning no capital gains tax (CGT) is payable at the time. Instead, the receiving spouse takes on the original cost, so any gain is deferred until they sell.

Before April 2023, this treatment ended at the end of the tax year in which a couple separated. For transfers made on or after 6 April 2023, separating spouses have until the end of the third tax year after the year of separation. Transfers made under a court order or formal divorce agreement can be made on a no gain, no loss basis without time limit.

What about the family home?

A main home is usually exempt from CGT through private residence relief, and the final nine months of ownership always qualify. Problems can arise where one spouse moves out and the home is not transferred or sold until much later. Under the rules introduced in April 2023, a spouse who has moved out but keeps an interest in the home can, in certain circumstances, claim the same relief as the spouse who remains. A spouse who transfers their share to the other but is entitled to a share of the eventual sale proceeds may also be able to claim relief on that later sale.

Is stamp duty payable on property transfers?

Transfers of property between spouses under a court order, or under an agreement made in connection with divorce or separation, are generally exempt from stamp duty land tax. However, if one spouse takes on a share of the mortgage, or buys a new home while still owning an interest in the former family home, the position can be more complex, and higher rates for additional properties may apply.

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Is maintenance taxable?

No. Spousal and child maintenance payments are not treated as taxable income for the person receiving them, and the person paying receives no tax relief for them. Maintenance is paid from the payer's taxed income.

How are inheritance tax, pensions and other allowances affected?

Transfers between spouses are generally exempt from inheritance tax, and this exemption continues until the final order is made. Transfers after that point are usually exempt where they are made as part of the financial settlement, but larger transfers outside the settlement may need to be considered.

A pension sharing order does not itself trigger an income tax or CGT charge, although the pension credit will be taxed in the usual way when benefits are eventually drawn. Couples should also review allowances that depend on being married, such as the marriage allowance, which can be cancelled once a couple separates.

When should I get specialist tax advice?

Where a settlement involves investment property, shares, a business or significant pension funds, specialist tax advice is usually worthwhile. Tax can change the real value of what each spouse receives, so two settlements that look equal on paper may not be equal once tax is taken into account. Your solicitor can identify where advice is needed and work alongside an accountant or tax adviser to structure the settlement efficiently.