{"id":3317,"date":"2019-06-26T15:24:12","date_gmt":"2019-06-26T15:24:12","guid":{"rendered":"https:\/\/www.just-family-law.com\/blog\/?p=3317"},"modified":"2020-05-07T14:47:48","modified_gmt":"2020-05-07T14:47:48","slug":"does-splitting-up-affect-tax-in-the-uk","status":"publish","type":"post","link":"https:\/\/www.just-family-law.com\/blog\/index.php\/2019\/06\/26\/does-splitting-up-affect-tax-in-the-uk\/","title":{"rendered":"Does splitting up affect tax in the UK?"},"content":{"rendered":"<blockquote>\n<figure id=\"attachment_3336\" aria-describedby=\"caption-attachment-3336\" style=\"width: 426px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/www.just-family-law.com\/blog\/wp-content\/uploads\/2019\/06\/IMG_9267.jpeg\"><img data-attachment-id=\"3336\" data-permalink=\"https:\/\/www.just-family-law.com\/blog\/index.php\/2019\/06\/26\/does-splitting-up-affect-tax-in-the-uk\/version-6\/\" data-orig-file=\"https:\/\/www.just-family-law.com\/blog\/wp-content\/uploads\/2019\/06\/IMG_9267.jpeg\" data-orig-size=\"426,640\" data-comments-opened=\"1\" data-image-meta=\"{&quot;aperture&quot;:&quot;0&quot;,&quot;credit&quot;:&quot;&quot;,&quot;camera&quot;:&quot;&quot;,&quot;caption&quot;:&quot;&quot;,&quot;created_timestamp&quot;:&quot;1540654411&quot;,&quot;copyright&quot;:&quot;&quot;,&quot;focal_length&quot;:&quot;0&quot;,&quot;iso&quot;:&quot;0&quot;,&quot;shutter_speed&quot;:&quot;0&quot;,&quot;title&quot;:&quot;Version 6&quot;,&quot;orientation&quot;:&quot;0&quot;}\" data-image-title=\"Does splitting up affect tax in the UK?\" data-image-description=\"\" data-medium-file=\"https:\/\/www.just-family-law.com\/blog\/wp-content\/uploads\/2019\/06\/IMG_9267-200x300.jpeg\" data-large-file=\"https:\/\/www.just-family-law.com\/blog\/wp-content\/uploads\/2019\/06\/IMG_9267.jpeg\" decoding=\"async\" loading=\"lazy\" class=\"size-full wp-image-3336\" src=\"https:\/\/www.just-family-law.com\/blog\/wp-content\/uploads\/2019\/06\/IMG_9267.jpeg\" alt=\"Does splitting up affect tax in the UK?\" width=\"426\" height=\"640\" srcset=\"https:\/\/www.just-family-law.com\/blog\/wp-content\/uploads\/2019\/06\/IMG_9267.jpeg 426w, https:\/\/www.just-family-law.com\/blog\/wp-content\/uploads\/2019\/06\/IMG_9267-200x300.jpeg 200w\" sizes=\"(max-width: 426px) 100vw, 426px\" \/><\/a><figcaption id=\"caption-attachment-3336\" class=\"wp-caption-text\">Megan Saksida of Meganomics, Chartered Accountant, lecturer and writer on private client taxes.<\/figcaption><\/figure><\/blockquote>\n<h3><\/h3>\n<p>Yes, says guest blogger Megan Saksida of Meganomics, but HMRC may not consider you separated\u00a0for tax purposes. This is because it depends\u00a0whether there is &#8211;<\/p>\n<ul>\n<li>a Court order<\/li>\n<li>a deed of separation<\/li>\n<li>an intention on the part of both of you to separate &#8211; that&#8217;s a total separation, not something that is on\/off.<\/li>\n<\/ul>\n<p>In <a href=\"https:\/\/www.casemine.com\/judgement\/uk\/5b2897d52c94e06b9e19bfff\" target=\"_blank\"><em>Benford v HMRC\u00a0(2011)<\/em><\/a> the couple said their separation was permanent. But\u00a0they were so amicable that after a year he\u00a0moved back home because she was expecting their baby. Not sure about the legal status of your separation? Speak to an\u00a0<a href=\"https:\/\/www.just-family-law.com\/\" target=\"_blank\"><em>expert family lawyer<\/em><\/a>.<\/p>\n<h3><strong>Why is the date of separation important<\/strong><\/h3>\n<p>The way you are taxed before and after separation is different. This\u00a0goes for both capital gains tax and income tax.<\/p>\n<h3><strong>Are there tax advantages to staying together<\/strong><\/h3>\n<p>Yes, there are. These are what you stand to lose &#8211;<\/p>\n<ul>\n<li>married couples allowance<\/li>\n<li>transferable allowance for married couples<\/li>\n<li>treatment of joint asset income<\/li>\n<li>capital gains tax exemption<\/li>\n<\/ul>\n<h3><strong>Are there tax advantages to\u00a0splitting up<\/strong><\/h3>\n<p>Yes, if one of you is a high earner because\u00a0high income child benefit charge only applies if you&#8217;re married, in a civil partnership, or living together as such.<\/p>\n<h3><strong>The married couples allowance<\/strong><\/h3>\n<p>This is \u00a38,695 if you&#8217;re together for the full tax year. It&#8217;s reduced in the year of marriage or civil partnership but is available in full in the year of separation.\u00a0This allowance is given to the higher earner of the couple if one of\u00a0you\u00a0was born before 6 April 1935.<\/p>\n<p><em>If you separate<\/em> &#8211; How will this affect married couples allowance? It&#8217;s still available in the year of separation. And if you reconcile it&#8217;s available for the tax year of reconciliation on a pro rata basis.<\/p>\n<h3><strong>The transferable allowance for married couples<\/strong><\/h3>\n<p>Do you both pay basic rate tax? Are you married or in a\u00a0civil partnership for all of the tax year? If so, one of you can decide to donate ten percent of their personal allowance to the other. A good idea if one of you isn&#8217;t using up all their personal allowance. Note: it doesn&#8217;t increase the personal allowance of the other but reduces their tax liability by 20 percent of the personal allowance transferred &#8211; \u00a3238 in 2018\/2019.<\/p>\n<p><em>If you separate<\/em> &#8211; How will this affect the transferable allowance for married couples? It&#8217;s given\u00a0in full in both the year of the marriage and the year of the separation. It will cease the tax year after the divorce unless the donating spouse withdraws the transfer earlier.<\/p>\n<h3><strong>Treatment of joint asset income<\/strong><\/h3>\n<p>Do you own a &#8220;buy to let&#8221;? HMRC sees you as equally entitled to the income even if you own the property in unequal shares. You can tell HMRC you want to go for unequal shares of income. But this means your ownership of the\u00a0property will have to be unequal too. This only applies whilst\u00a0you are living together.<\/p>\n<p><em>If you separat<\/em>e &#8211; How will this affect treatment of joint asset income? Instead of HMRC taxing you on equal shares of income irrespective of your actual share\u00a0of ownership of the property, tax will now apply depending on your actual share.<\/p>\n<h3><strong>High income child benefit charge<\/strong><\/h3>\n<p>If either of you earn a &#8220;net adjusted income&#8221; of over \u00a350,000, HMRC claws back one percent of child benefit for every \u00a3100 you earn over \u00a350,000. This doesn&#8217;t just apply to married couples and those in civil partnerships but to those who live together as such too.<\/p>\n<p><em>If you separate<\/em> &#8211; How will this affect high income child benefit charge?\u00a0If you opted not to receive the benefit because the salary of the other was above the minimum even though your own\u00a0income wasn&#8217;t, you\u00a0may wish to reinstate the benefit once the separation is permanent.<\/p>\n<h3><strong>Capital gains tax exemption<\/strong><\/h3>\n<p>Transfers between spouses and civil partners are treated as being made on a &#8220;no gain no loss&#8221; basis which means no tax is due. Any asset gifted between them keeps its original cost. It&#8217;s only when the recipient sells the asset to someone else that there is a chargeable gain or loss.<\/p>\n<p><em>If you separate<\/em> &#8211; How will this affect capital gains tax exemption?\u00a0The exemption for gifts between you can be used until\u00a0the end of the tax year (5 April) of the year of separation.\u00a0Of course, these transfers only save CGT for the\u00a0<em>donor<\/em>\u00a0spouse. Whereas the\u00a0<em>donee<\/em> spouse will eventually have\u00a0<em>all<\/em>\u00a0the gain over both the\u00a0<em>donor&#8217;s\u00a0<\/em>and the\u00a0<em>donee&#8217;s\u00a0<\/em>period of ownership\u00a0if\u00a0the asset is sold. Negotiations for a financial settlement should take into account the impact of\u00a0CGT in this situation.<\/p>\n<p>After the tax year of the separation is over you will be treated as <em>connected<\/em> <em>parties<\/em> and any transfers will be deemed by HMRC to have been made at market value. For example, Andy and Dave split up. They reach a financial settlement in their divorce after the tax year of separation. Andy owns the\u00a0holiday home in Devon in his sole name. He agrees to give it to Dave.\u00a0Andy will be liable to\u00a0CGT as, for tax purposes, the Devon holiday home will be regarded as having been transferred to Dave\u00a0at market value. This is even if no cash changes hands.\u00a0If the holiday home has increased in value during\u00a0Andy&#8217;s ownership\u00a0more than the annual exemption available to him in the year of the disposal he will be liable to\u00a0CGT at either 18 or 28 percent depending on his income tax level.<\/p>\n<p>After the divorce goes through the couple are no longer <em>connected parties<\/em>. But take care, they may still be <em>connected parties<\/em> for another reason. Are they both partners of a partnership? Or is one\u00a0the trustee of a trust the other set up?<\/p>\n<h3><strong>Does splitting up affect tax in the UK<\/strong><\/h3>\n<p>Contact Joanne Houston for expert advice on\u00a0the question\u00a0<em>Does splitting up affect tax in the UK\u00a0<\/em>on 01962 217640 for an initial\u00a0<em><strong>free\u00a0of charge<\/strong><\/em>\u00a0consultation.\u00a0In this 20 minute session\u00a0Joanne will review your situation and how you can achieve your objectives.<\/p>\n<blockquote><p><em><a href=\"https:\/\/www.just-family-law.com\/\" target=\"_blank\">JUST FAMILY LAW<\/a> are specialist divorce and family lawyers. We offer\u00a0<a href=\"https:\/\/www.just-family-law.com\/blog\/index.php\/2017\/06\/02\/pay-as-you-go-divorce-costs\/\" target=\"_blank\" rel=\"noopener\">Pay as you go costs<\/a>. We offer\u00a0<a href=\"https:\/\/www.just-family-law.com\/blog\/index.php\/2019\/01\/17\/what-is-collaborative-family-law\/\" target=\"_blank\" rel=\"noopener\">Collaborative law<\/a>\u00a0solutions tailored to your family\u2019s needs.<\/em><\/p>\n<p><strong>The topics covered in this blog post\u00a0<\/strong><em><strong>Does splitting up affect tax in the UK<\/strong><\/em><strong><em>\u00a0<\/em>are complex. They are provided for general guidance only. If any of the circumstances mentioned in this blog apply to you, seek expert legal advice.<\/strong><\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"<p>Yes, says guest blogger Megan Saksida of Meganomics, but HMRC may not consider you separated\u00a0for tax purposes. This is because it depends\u00a0whether there is &#8211; a Court order a deed of separation an intention on the part of both of you to separate &#8211; that&#8217;s a total separation, not something that is on\/off. In Benford [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":3336,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[582],"tags":[545,14,544,542,543],"jetpack-related-posts":[],"_links":{"self":[{"href":"https:\/\/www.just-family-law.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/3317"}],"collection":[{"href":"https:\/\/www.just-family-law.com\/blog\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.just-family-law.com\/blog\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.just-family-law.com\/blog\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.just-family-law.com\/blog\/index.php\/wp-json\/wp\/v2\/comments?post=3317"}],"version-history":[{"count":28,"href":"https:\/\/www.just-family-law.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/3317\/revisions"}],"predecessor-version":[{"id":3349,"href":"https:\/\/www.just-family-law.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/3317\/revisions\/3349"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.just-family-law.com\/blog\/index.php\/wp-json\/wp\/v2\/media\/3336"}],"wp:attachment":[{"href":"https:\/\/www.just-family-law.com\/blog\/index.php\/wp-json\/wp\/v2\/media?parent=3317"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.just-family-law.com\/blog\/index.php\/wp-json\/wp\/v2\/categories?post=3317"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.just-family-law.com\/blog\/index.php\/wp-json\/wp\/v2\/tags?post=3317"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}