January 8, 2019
The UK 2018 Autumn Budget was delivered by the Chancellor on 29 October. In amongst the usual changes to personal tax allowances and duty rate increases on tobacco and alcohol was a Capital Gains Tax (CGT) amendment which could affect a number of divorcing and separating couples.
When a marriage or relationship breaks down, it is often the case that one party has to find alternative accommodation. Sometimes that party has sufficient financial resources to enable them to purchase a new home even though they remain a joint owner of the former matrimonial home. Eventually the matrimonial home will be sold or transferred to the residing party but at that point there is a possibility that a CGT liability will arise for the party who is no longer resident.
In normal circumstances when you sell your home, you are protected from incurring a CGT liability by what is known as Private Residence Relief (PRR). Only one property can be nominated to benefit from PRR at any time. Therefore, when the leaving party purchases a second property, the Relief cannot apply to both. The liability is however reduced by automatic PRR that is currently provided for the last 18 months prior to a sale or transfer. This means that at present the party leaving the matrimonial home would have 18 months grace before a potential tax liability would kick in. This is known as the Final Period Exemption.
The Autumn 2018 budget changed that. The Chancellor announced that with effect from April 2020, the Final Period Exemption will be reduced from 18 months to 9 months. This is likely to be a change to the detriment of scores of separating or divorcing couples.
One way of reducing the risk of a liability of arising in the event of a divorce, is to ensure that you do not delay in seeking legal advice. Our specialist family solicitors can consider financial matters with you and assist you in negotiating a settlement swiftly and, where possible, amicably. Where specialist tax advice is required from a financial adviser or accountant, we can signpost this at an early stage to ensure that any liability which may arise is taken into account within negotiations.
For further information on this or any other family law matter, please contact our solicitors, Kathryn Ferris or Dipika Mistry by emailing firstname.lastname@example.org.
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