Separation is a traumatic time for most people. On top of the upheaval, you’re unlikely to want to pay tax when you divide up the assets if you don’t have to.
You can transfer the assets tax-free if you act quickly. Generally, to qualify, the transfers must take place by 5 April of the tax year in which separation occurs.
Therefore it’s best to get tax advice as early as possible to avoid unexpected tax bills from HMRC. And obviously keeping HMRC out of the equation will maximise the overall net asset pool for both spouses.
However, if you can’t arrange a transfer of assets before 5 April of the year in which you separate, there may still be tax planning opportunities if you can offset capital losses against your capital gains. But again, do speak to a tax expert to ensure you do this in the most tax efficient way possible.
Agreement to transfer business and investment assets during the tax year when you separate
What many people don’t realise is that agreement on any transfers relating to business assets, investment properties and treasured possessions such as jewellery and antiques should also be made by the end of the tax year (5 April) of the year of separation.
The tax rules relating to the transfer of business assets are particularly complex. HMRC has very detailed requirements to grant a tax-free clearance for these assets. So to make sure your transfer of business assets is tax-free, it is worth involving a tax adviser at the outset.
Time limit for transferring the family home tax-free
Presently the family home can be transferred to one spouse up to 18 months after the date of separation. However, from 6 April 2020, you will only be able to transfer the family home tax-free up to 9 months after separation.
Transfer to non-domiciled beneficiaries
Where there are offshore assets and one spouse is not domiciled in the UK, it may make sense to transfer these assets to the non-domiciled spouse. This would keep these assets outside the UK inheritance tax net, at least for the time being. However it is imperative to ensure the relevant spouse is definitely non-domiciled in the UK for HMRC’s purposes. And to ensure this planning is effective, it’s vital to understand the non-dom spouse’s longer-term plans.