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When you are married, there are a number of tax advantages available to you which will be withdrawn as you divorce. Some of these tax advantages disappear at the point that you and your spouse separate or on 5 April following permanent separation, so it is important to consider how you might use these advantages before you separate permanently.
A married person can transfer assets to their spouse without any capital gains tax arising. For example, if a husband owns an asset that has gained in value, when he transfers it to his wife it will be deemed that his wife has acquired the asset at the same price that the husband acquired it for, so no capital gain arises. This is known as a nil gain/ nil loss transfer.
However, when a married couple separate permanently, they no longer have the ability to transfer assets to each other without a gain or loss arising. The transfer would be deemed to take place at market value, regardless or whether any money was exchanged and tax would be due on any gain.
An important exception to be aware of is that any transfer of an asset between separated spouses can be treated as nil gain/ nil loss, but only as long as they take place before 5 April following the permanent separation. For example, if a married couple permanently separated on 5 December 2013, they would have until 5 April 2014 to transfer assets without a capital gain arising.
A married couple will also be able to claim relief on any gain on the sale of their matrimonial home, known as main residence relief. After 5 April following separation, however, a husband and wife would each have their own main residence relief. So, if one spouse had moved out and transferred their share in the property to the spouse, normally tax would be due on any capital gain. However, there is a special rule which may apply which means that even if the transferring spouse no longer lives in the property and is separated from their spouse, no tax will be due.
Transfers of assets between married couples are also exempt from inheritance tax, which is currently 40%. This applies until the date of the Decree Absolute, however after the Decree Absolute this will be a potentially exempt transfer, so if the person transferring the asset dies within seven years of the transfer, inheritance tax will be due.
When contemplating separation, it is important to take specialist advice in order to take advantage of any tax reliefs which are only available while you are married. If you would like to talk about making transfers to your partner before you permanently separate, please contact us.