Divorce

By Tolley in association with Emma Haley at Boodle Hatfield LLP
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The following Trusts and Inheritance Tax guidance note by Tolley in association with Emma Haley at Boodle Hatfield LLP provides comprehensive and up to date tax information covering:

  • Divorce
  • IHT consequences of transfers of assets on divorce
  • CGT consequences of transfers of assets on divorce
  • Financial planning following divorce
  • Asset protection and divorce

This note considers the inheritance tax (IHT) implications of divorce, or possible divorce, both in relation to the parties themselves and other relations whose lifetime planning choices may be influenced by concerns about a divorce in the family. All references to divorce apply equally to the dissolution of a civil partnership.

The basic capital gains tax (CGT) position on transfers of assets on divorce is covered in brief for completeness.

IHT consequences of transfers of assets on divorce

Any transferbetween spouses made on the breakdown of a marriage is covered by the spouse exemption if made in advance of the decree absolute (or final dissolution order).

IHTA 1984, s 18

On some occasions, assets are not transferred until after the divorce is finalised (particularly where the parties have gone to court to determine the appropriate financial order, as the court order does not take effect until after the decree absolute is made).

However, transfers made after the decree absolute as a result of a divorce are either potentially exempt transfers or, more usually, escape IHT altogether because they are not treated as ‘transfers of value’ for IHT purposes.

For instance, a disposition is not a transferof value if it was not intended to confer any gratuitous benefit on any other person and either:

  • it was made in a transaction at arm’s length between persons not connected with each other, or
  • it might be expected to be made in a transaction at arm’s length between persons not connected with each other

IHTA 1984, s 10

Following divorce, husband and wife are no longer connected persons and transfers from one former spouse to another will generally be regarded as transactions at arm’s length that do not

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