General principles - overview

In proceedings for divorce, nullity or dissolution it is very important to give early consideration to the tax consequences of any proposed financial orders or the implications for the parties' circumstances. The implications may have a significant impact on negotiations and advice given. There may be important consequences regarding the transfer of certain assets in the year of separation.

The impact of income tax, while still important, is of less significance than that of capital gains tax (CGT).

CGT is charged on the profit arising on the disposal of a capital asset. It is possible to mitigate the extent of CGT by the careful timing of disposal of assets and the choice of which assets to transfer. It is essential to ensure awareness of any liability that may be deferred to a future date as well as from any immediate transactions.

Inheritance tax (IHT) is not generally an issue on relationship breakdown if the parties are both domiciled in the UK. It may be relevant, however, where a trust or settlement is created by a financial order after 22 March 2006. Careful consideration should be given in each case to the relevant legislation to make the best use of available tax-free transfers and allowances. Consider obtaining expert advice on the issue of taxation where necessary. When instructing an expert, consider their qualifications to give expert evidence in court.