Property tax implications of getting divorced

If you are in the process of getting divorced, it is likely that the tax considerations involved are not foremost in your mind.

However, divorce can have extensive implications for your tax bill, including in relation to Capital Gains Tax (CGT).

This means it is crucial that you take your tax position into consideration when negotiating your financial settlement.

For the purposes of CGT, spouses and civil partners can be taxed as separate individuals under certain circumstances and could be subject to tax on any chargeable gains arising on disposals of assets.

Every individual has an annual CGT exemption – currently £12,000 for the 2019/20 tax year – so any gains above this amount are subject to CGT at various rates, depending on a person’s income and the nature of the asset.

The most significant asset in most people’s estate is their home. In most cases, the availability of private residence relief (PRR) means these will not result in a CGT liability.

However, a married couple, or civil partners, can only have one principal private residence between them – typically the one at which they reside. If couples own a second home, they must decide which property is their main residence and which should subject to CGT if it is sold.

Elections can be made within two years after a change, for example when a new residence is bought or sold.

If an individual has lived in a property as their main home for a period, the last 18 months of ownership are treated as a period of residence regardless of whether that individual lived in the property during that time or not.

However, this period will be reduced to nine months from April 2020, which is likely to have a significant impact on couples stuck in a dispute.