Separation, divorce or civil partnership dissolution may affect some aspects of your tax position if you are a married couple or civil partners. Separation has no impact on the tax position of unmarried couples – except in relation to council tax.
Married couples and civil partners are treated as independent people for income tax purposes, so divorce, dissolution or separation does not normally have any impact on your income tax situation.
The exception is where you and/or your spouse were born before 6 April 1935, in which case:
- You can claim tax relief on legally enforceable maintenance payments you make to your former spouse or civil partner but only on payments up to a maximum level (£2,670 in 2009-10 and 2010-11).
- You can continue to claim any married person's allowance up to the end of the tax year in which you divorce, dissolve the partnership or separate.
Capital Gains Tax (CGT)
Capital Gains Tax is a tax on the increase in value of something during the period you have owned it. It is due when you sell, transfer, give away or otherwise dispose of the item. Some items are exempt from capital gains tax, including your only or main home.
Gifts and other transfers between spouses and civil partners are free of capital gains tax while you are together. This continues for the remainder of the tax year in which you permanently separate, but after that normal capital gains tax rules apply and so tax could be due on transfers between spouses or civil partners as part of their final settlement.
Special rules apply to your former home together: if one of you moves out and sells or gives your share to the other within three years of separation, there will be no tax to pay provided certain conditions are met. The conditions are that the other person still lives in the home and that the person who moved out has not bought another home and declared that as his or her main home for CGT purposes.
CGT issues are complex and you may wish to seek advice from a solicitor and/or an accountant, especially if you own more than one home or have other assets which have increased in value. See Useful links.
Inheritance Tax (IHT)
This is a tax on gifts you make during your lifetime or on death. Usually, gifts between spouses and civil partners are tax-free while they are together. This stops being the case once you are divorced or your partnership is dissolved.
However, some gifts are always free of inheritance tax. This includes lifetime gifts for the maintenance of your family. So maintenance payments to support your former spouse or civil partner or your children will be tax-free.
If you are the only adult in your new household, you may qualify for a reduction in your council tax bill (25 per cent in England, Wales and Scotland). In Northern Ireland, a single-person reduction in rates applies only if you are a pensioner aged 70 or over. For more information see www.direct.gov.uk