Tax implications of relationship breakdown

As there are no specific tax consequences to the relationship between unmarried couples or those who have not formed a civil partnership, so there are no special tax rules relating to their relationship breaking down. There is, however, a general rule for capital gains tax (CGT) that transactions not at arm's length must be recalculated as having been at market value—a transaction between an unmarried/non-civil partnership couple living together may well be treated as not having been at arm's length.

For married couples and civil partners, the main tax provisions relating to spouses/civil partners cease to apply when the relationship has broken down, rather than by reference to the date of any decree nisi or decree absolute/conditional civil partnership dissolution order or final dissolution order. For inheritance tax (IHT) purposes, the date of the decree absolute/final order is relevant.

Note that divorce, dissolution or separation does not invalidate any existing will or the intestacy provisions. However, if the will appoints a spouse as executor or trustee or makes a gift to that spouse, the will takes effect as if the spouse had died on the date of decree absolute/final order. Individuals are therefore strongly advised to make new wills following the breakdown of a marriage/civil partnership.