Family Law

New tax year changes

The start of the new tax year has understandably almost arrived unnoticed due to the pandemic, however, there are some pretty big changes which came into effect from 6 April 2020 which may particularly impact divorcing couples.

Capital gains tax

Capital gains tax is now payable within 30 days of selling or transferring a property.

If, as part of your divorce, you are jointly selling a property or you are transferring your share of a property to your partner, the capital gains tax will be due within 30 days of the disposal. 

If you are transferring the property within the tax year of separation then there will be no capital gains tax payable on transfer.

If you are transferring the property outside of the tax year of separation, capital gains tax will be payable on the market value of the property. See my previous blog here for more information.

Who does this potentially impact?

This will impact you if you are selling or transferring a property.

Action needed:  

Not only will capital gains tax be payable within 30 days but you will need to complete a land transaction report within 30 days.  

If you wish to instruct a tax adviser to assist you, you will need to inform HMRC and obtain authorisation that they will be acting on your behalf which can take up 2 weeks. Therefore, you should ensure that you are set up with an adviser ahead of the sale or transfer to ensure that there is no delay in completing the return and paying capital gains tax.

Main home relief: Periods of absence halved to 9 months

If you have lived in your property for the whole time you have owned it there is no capital gains tax due when you sell or transfer the home.  This relief is called principal private residence relief (PPR).  

The relief is only available for the periods of time you lived in the property (bar a few exemptions).  The final 9 months of ownership is always treated as though you lived in the property, also if you left the property for work then in some circumstances this period is also covered.  

If you have moved out of the family home and have been out of the home for more than 9 months then there may be capital gains tax due when you sell or transfer your share of the home.

Who does this potentially impact?

This will impact you if you moved out of the family home and have been (or will be) out of the property for more than 9 months before the property is sold or transferred.

Action needed: 

If you been out of the main home for over 9 months and are selling the property you may have a capital gains tax liability on sale and should seek tax advice. 

If you have been out of the main home for over 9 months and are transferring the property to your ex-spouse you may be able to make a s.225B election which would treat the property as though you have been living there for the purposes of PPR relief. 

You should seek advice to see if your circumstances meet the requirements for the relief.  

Main home relief: Lettings relief

Prior to 6 April 2020 if you had lived in a property as your main home at some point and then let the property out you could claim PPR relief (as above) and also lettings relief for the period of time the property was rented. 

This relief is now only available if you also lived in the property at the same time as the tenant.

Who does this potentially impact?

This will impact you if you rented out your main home at some point and would have claimed lettings relief on that period of time.

Action needed

If the above applies to you and you had a capital gains tax calculation done in the prior tax year, it may no longer be accurate and should be updated to reflect the new changes.

BADR: The new Entrepreneurs Relief

From 22 March 2020, the lifetime limit of £10,000,000 for Entrepreneur’s Relief was reduced to £1,000,000 and the exemption is now known as Business Asset Disposal Relief (BADR).  

This is a lifetime limit and means the first £1,000,0000 of disposals are taxed at the lower rate of capital gains tax (10%), any gains above £1,000,000 are taxable at 20%.  

BADR is available (broadly) to individuals who are disposing of shares or assets in a private limited trading company. The individual must own at least 5% of the overall share capital and have held the shares for at least 24 months prior to the disposal. (See a blog from Stowe Family Law’s forensic accountancy team here for more information.)

Who does this impact? 

This will impact you if you are transferring shares from a private ltd company after the tax year of separation, or if you are selling shares from a private ltd company and you would qualify for BADR.

Action needed: 

If you are transferring shares or assets in an unquoted company to your spouse after the end of the tax year of separation, even if the transfer value is under £1,000,000 you should consider that the transfer will use up some of your £1,000,000 lifetime allowance.  

As always, it is vital to check that you will qualify for the relief before factoring the lower capital gains tax rate into your computations.

This article was first published on the Stowe Family Law website, and is reproduced with permission.