New Tax Rules for Divorcing Couples in 2023: What You Need to Know
Changes to Capital Gains Tax, Lifetime Allowance Charge, and Corporation Tax
If you are going through a divorce, it is important to consider potential tax liabilities that may arise from the division of assets. The recent 2023 Budget has introduced major changes to tax legislation coming into effect from 6th April 2023, particularly in the areas of Capital Gains Tax, pensions, and corporation tax.
What are the changes to Capital Gains Tax?
The government has indicated that they will remove the tax charge on properties when they are transferring assets between spouses as part of divorce.
Instead of the Capital Gains Tax being paid on the transfer of a property, provided the transfer is made within 3 years of separation or the making of a formal order directing the transfer, whichever is the later, the new owner will be responsible to pay the Capital Gains Tax on the sale of the property.
If assets are being sold as part of a divorce settlement, they will still be subject to capital gains tax as normal. However, the Capital Gains Tax annual exemption will reduce from £12,300 to £6,000, so more people are likely to be liable to pay Capital Gains Tax.
What are the changes to the Lifetime Allowance Charge?
The lifetime allowance charge is being removed from April 2023 and abolished entirely from April 2024. A lifetime allowance is the total amount of pension benefits you can build up in your lifetime before you need to pay a tax charge and applies to all personal and workplace pensions, but not State Pension or any overseas pensions.
What are the changes to Corporation Tax?
If a business forms part of the matrimonial asset, considerations may need to be given to corporation tax. From 6th April 2023, the corporation tax rate is set to increase from 19% to 25%.
The increase will apply to businesses making profits of over £50,000. For business making profits under this, the corporation tax rate will remain at 19%.
For companies making profits over £250,000, the corporation tax rate will be 25%. For businesses with profits between £50,000 to £250,000, the rate will be between 19% to 25%. The tax-free dividend allowance is also being reduced from £2,000 to £1,000.
Tax is a complex area and the Divorce team here Wolferstans can identify when it is likely to be an issue in your case. We can also direct you to expert financial advisors who can provide you with the appropriate financial and tax advice.
Get in touch to speak to one of our experts.