TTF Tackles the Money Monster under your bed: Tax implications on divorce

"Going through this divorce has been overwhelming in so many ways, both emotionally and financially. It’s not been a bitter separation, but that doesn’t mean it’s been easy. One of the biggest things weighing on my mind right now is what happens with our family home. My partner and I have decided that selling it is the best option, but the whole process feels like something I can’t cope with, especially when I think about the tax implications — specifically Capital Gains Tax (CGT).

I’ve heard bits and pieces about CGT when it comes to selling a marital home after divorce, but I don’t really understand how it works, and I’m worried I might be hit with a large tax bill I’m not prepared for. This home isn’t just bricks and mortar; it’s full of memories, and selling it feels like another layer of loss on top of everything else. But I know it’s the right step for us both to move forward. I just don’t know how to navigate it.

I’m beyond overwhelmed, to be honest.

It’s hard not knowing if I’ll be facing a hefty tax bill just for selling our home. I feel like I can’t prepare for something that I know nothing about. I have so many questions. How much of the sale will go to tax? Is there any way to minimise it? I’ve heard something about private residence relief, but will I even qualify since we’re divorcing? It’s all so confusing, and the last thing I need right now is more financial stress on top of everything else."

It’s completely understandable to feel overwhelmed during a divorce, especially when it comes to the financial side of things like Capital Gains Tax (CGT) on the sale of your family home. Divorce is a huge life change, and adding the complexities of tax rules into the mix can make the situation feel even more daunting. However, understanding how CGT works in divorce, and what steps you can take to minimise it, may help ease some of the pressure.

How CGT Works When Selling the Marital Home After Divorce

In most cases, if the property has been your main home, you may not need to worry too much about CGT because of something called Private Residence Relief (PRR). This relief can exempt you from CGT for the time you lived in the home as your main residence. However, if the sale happens after one of you has moved out, things can get a little more complicated, and you might lose some of that relief.

The good news is, in the context of divorce or separation, there are special rules that can help reduce or even eliminate CGT on the sale of the marital home. One important rule to be aware of is that if the property is sold within nine months of one spouse moving out, you’ll still qualify for full Private Residence Relief. This window is designed to give divorcing couples time to sell the property without facing CGT charges.

However, if the sale takes place after that nine-month period, the portion of time when the house was not your main residence may become subject to CGT.

There are ways to reduce or avoid CGT, for example looking at transferring ownership of the property or considering the timing of selling the home. However this is where things get more complex, and professional advice is recommended.

While it’s tempting to push tax worries to the back of your mind, now is the best time to get clear advice on what steps to take. It is worth noting that a divorce solicitor may not be best placed to offer you bespoke advice. Speaking with a trusted tax professional will give you peace of mind and help you navigate the complexities of CGT in divorce. They’ll assess your personal situation, clarify whether you qualify for any reliefs, and help you make informed decisions to reduce the financial burden.

Divorce is difficult enough without the added stress of unexpected tax bills. By getting professional advice now, you can feel more in control of your current and future finances and ensure you’re making the best decisions for yourself during this challenging time.

If you're feeling uncertain or overwhelmed, know that you don't have to go through this alone. Reaching out to a specialist who understands both tax law and appreciates the emotional difficulties surrounding divorce will give you the clarity and confidence to move forward-feeling fully supported and listened to.

Contact a tax advisor today to get personalised advice and ensure you're taking the best first steps for your circumstances.

Capital Gains Tax Expertise: The Tax Faculty LLP Managing Partner Charles Tateson Named UK Capital Gains Tax Advisor of the Year 2023

The Finance Monthly Taxation Awards recognises the achievements of tax professionals from around the globe.

Winning such an award is no small feat. It is a reflection of hard work, extensive knowledge, and an ability to navigate the intricacies of the UK tax system.

Read more about Charles and the award here.

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