Specialist tax consultant, Rachel Sestini, joins us on the Stowe Family Law blog to look at the current challenges for international couples dividing assets and income during divorce.
Divorce and tax planning for international couples
The pandemic and resultant lockdowns have put a huge financial and emotional pressure on many people, not least married couples. The number of people enquiring about divorce has risen substantially during this time.
However, at a time when assets and incomes have fluctuated it can be more difficult to divide assets equally and fairly. For example, recent volatility in equity markets has hit dividend income which may have a knock-on effect on pension income or maintenance awards.
As pension pots are usually the second most valuable asset in a split, this could have a big impact on any settlement.
Capital Gains Tax
Transfers of assets between spouses or civil partners do not usually give rise to a Capital Gains Tax (CGT) charge. However, this rule only applies to spouses or civil partners that are living together at some point during the tax year.
In relation to the family home, if that property has been the couple’s main residence throughout ownership, any gains arising from its sale are exempt from CGT. However, where one spouse moves out of the matrimonial home and buys or rents a new property then relief will usually only be available on their share of the gain for 9 months from when they moved out. This can be extended in some circumstances.
Inheritance Tax
Transfers between spouses are exempt from Inheritance Tax (IHT), and this continues throughout the period of separation up until the decree absolute. Where one spouse is not resident in the UK, the maximum that can be transferred free of inheritance tax is £325,000.
Pensions
In relation to pensions, if you’re an international couple, the situation can become more complicated as for example, the US authorities treat post-tax split of pensions differently to the UK. In the UK, courts deal with pension arrangements via pension sharing, pension offsetting or a pension attachment order.
The economic aftermath of this pandemic is not yet known and, if divorce proceedings are initiated, could result in financial turmoil for either or both parties. It’s advisable to seek advice early on to ensure there are no unexpected tax issues, including any changes in legislation.
How we can help
If you’re looking for some advice in relation to asset or income sharing or are grappling with other financial issues during this time, Sestini & Co can help. They dedicate considerable time and expertise to keeping up with changing case law and ensuring they know the tax rules.
Sestini & Co’s Managing Director, Rachel Sestini, has over 25 years in tax, training in UK and US personal tax with PwC in London, and then as Head of the cross-border tax advisory team at Coutts & Co. Rachel is CTA qualified and qualified as an enrolled agent and is a member of the Association of Independent Expatriate Tax Practitioners (AIETP).
If you need help with any tax-related issues and would like to speak to Sestini & Co, give them a call on 01761 241 861 or email them today.
They will be pleased to discuss by phone or to invite you to an online consultation.
