Tax For Divorcing Couples, Business Issues and Main Homes Recommended For Change In New Report From Office Of Tax Simplification

The Office for Tax Simplification released its second report today (20 May) announced a raft of recommendations for simplifying Capital Gains Tax, notably for divorcing couples, business issues and main homes.

In the report was the recommendation that the government should extend the ‘no gain no loss’ window on separation to the later of the end of the tax year at least two years after the separation event, or any reasonable time set for the transfer of assets in accordance with a financial agreement approved by a court.

Family law and divorce experts at leading national law firm Irwin Mitchell have praised the recommendation, arguing the current rules forces couples to stay together longer than they want or need to be.

Expert Opinion

“When a relationship breaks down, tax is rarely the first consideration of the separating parties. Even those who give early thought to their future financial arrangements don’t often have in mind that transfers of assets which take place after the tax year of separation may well result in a charge to CGT.

“This creates a timings issue – for instance people separating in March only have until 5 April to finalise any transfers between them. It can lead to pretence about when separation took place and, for those in the know, staying together a bit longer in an attempt to avoid the tax problem.

“If implemented, this change could remove an additional pressure on separating couples and allow them more time to negotiate appropriate financial settlements. It would reflect the reality of people’s lives because the divorce process takes on average over a year; requiring couples to have everything sorted out by the 5 April after they separate is simply not realistic in many cases. It would also remove the need to take tax advice in more straightforward cases.

“If the government is serious about simplifying tax and not encouraging people to change their behaviour because of tax, then this proposal should certainly be followed - we shouldn’t force people to stay together until 6 April just to avoid tax.” Hayley Trim - Partner

Meanwhile for businesses, the report found the Government should consider whether Capital Gains Tax should be paid at the time the cash is received in situations where proceeds are deferred such as on the sale of a business or land, while preserving eligibility to existing reliefs.

The government should consider enabling an irrevocable provision in the documentation for a corporate bond to specify that it is subject to Capital Gains Tax, and for the absence of such a provision to mean that it is exempt.

Tax specialists at Irwin Mitchell say the move gets rid of uncertainty and takes the focus away from tax reliefs.

Expert Opinion

“The proposed business issues recommendations will be welcomed by the tax payer. They would help to remove uncertainty and should mean that decisions can be taken on commercial grounds without losing the benefit of tax reliefs.

“This is particularly relevant regarding taxation, and availability of BADR, on business sales. These types of transactions invariably involve earn-outs for commercial and not tax reasons. The tax rules around them are complicated and often difficult to negotiate from a commercial perspective.” Helen Clarke - Partner