The effect of relationship breakdown — overview

There are a number of tax implications on the breakdown of a marriage or civil partnership. The year of change for income tax purposes is the year in which the parties permanently separate and not the year of divorce or dissolution if later.

Upon separation the presumption that while assets are jointly owned by a married couple or civil partners they are equally entitled to the income from those assets ceases. Income tax liability becomes dependent on beneficial ownership of the property. One party may therefore have an increased liability to higher-rate tax.

Any tax credits that are claimed during the course of marriage or civil partnership will have to be reassessed.

Consideration should be given to the impact of relationship breakdown on pensions. If a pension sharing order is made, there are regulations that determine the effect of a pension credit on a lifetime allowance. The date of the pension sharing order and whether the pension was in payment at the time of the order are relevant factors in determining this.

There may be tax implications for a family business upon the breakdown of a relationship.