Tax and divorce: a practical guide for family lawyers

Helen Jones, BDO

As the tax landscape continues to evolve, the financial implications of separation and divorce have become increasingly complex. Whilst an equal division of assets may appear fair on paper, the true economic outcome can be very different once tax, liquidity and future planning considerations are taken into account.

We explore some UK tax traps facing separating couples and the importance of identifying them at an early stage. We examine the extended capital gains tax no gain/no loss rules, latent tax liabilities and the need for robust valuations. We also highlight common pitfalls including latent tax exposure, relying on historic valuations and assuming that transfers between spouses are automatically free from tax consequences.

Against a backdrop of increasing global mobility and ongoing tax reform, international issues can also play a significant role in settlement negotiations. We consider the impact of cross-border tax considerations, the new foreign income and gains regime, inheritance tax developments, carried interest reforms, and the risks of HMRC enquiry.

Understanding these issues can help ensure that a settlement is not only equitable, but also effective and sustainable in practice.