At the moment, separating couples have until the end of the tax year in which they separate to transfer assets including property other than the main residence without incurring CGT.

This means that tax on any gains resulting from the transfer are not payable until the asset is disposed of by the receiving spouse or civil partner, who will be then be treated for tax purposes as having acquired the asset at the same original cost as the transferring spouse or civil partner.

In practice, this means that a separating couple are under pressure to reach a quick settlement if they are to avoid CGT.  Quick settlements are just not always possible, especially when there is emotional upheaval to deal with.  There are many future considerations to be considered when separating – where to live; how to pay the bills; how to cope alone….

So, it is good news that from 6^th April 2023, separating spouses or civil partners are to be given up to three years after the year they separate in which to make ‘no gain or no loss’ transfers.   This is further extended to assets that separating spouses or civil partners transfer between themselves as part of a formal financial agreement ancillary to divorce.   I would always recommend a formal agreement in any event but even more so now.

In many cases, especially where there are children involved, the matrimonial home remains in joint names, or one party transfers his/her interest to the other upon the basis that they will receive a percentage of the sale proceeds once the house is sold – typically when the youngest child is 18.  

At the moment, potentially, CGT will be payable by the party who vacated the home but post-6^th April 2023, that party is also given an option to claim Private Residence Relief (PRR) when it is sold.  This applies whether the house remained in joint names, or one party transferred his/her interest to the other pending sale (and their share of the capital) at some later date – more good news.

To find out more or how we can help, please call our office on 01206 577676. 

Nothing happens to your mortgage when you divorce or separate. It doesn’t change.

All parties on a joint mortgage are jointly and severally liable for making sure the full capital and interest payments are made every month, irrespective of who lives in the property or any personal agreements between borrowers.

You and your ex-partner are equally liable for the mortgage – this remains true even if the loan is based on the income of one party or if one party moves out of the property. Your lender has the right to chase both parties, either jointly or individually, for payments – plus any costs, legal fees or loss made upon any possible repossession.

Any refusal to pay the mortgage will impact your ex-partner’s credit file as well as yours. You will both enter into arrears, meaning it will be much harder to secure a mortgage or any form of credit moving forward.

Do you have enough money to pay for your own accommodation having left the family home as well as paying the mortgage?  You might need to explain to your ex- wife/husband that there simply isn’t enough money to pay for two homes and that you may need to sell the family home unless you can work together to resolve the situation.  If she/he is desperate to stay in the home, she/he may need to look into other options.

What Can I Do if My Ex-Partner Stops Paying?

Speak to your lender as soon as your ex-partner indicates they won’t be maintaining their share of the mortgage payment.

Lenders sometimes show leniency on cases where they’re kept updated. Some lenders may even consider reducing your monthly payments by converting to interest-only or extending the term.

Other options if your ex-partner stops paying and a transfer of equity is refused include:

• Replacing the person coming off the mortgage with someone who can afford it – family money? Equity release?
• Downsizing by selling the house and repaying the current mortgage – note that neither party can sell without the agreement of the other
• If your ex thinks you can afford it, she/he might apply for Interim Maintenance but the best thing to do is to start thinking long-term as to what she/he wants and how to achieve it.
• Getting a financial remedy order to remove your partner from the title deeds but not the mortgage – they would have no further claim to the property but still be liable for the mortgage
• Can she afford the mortgage on her own?  Remortgaging in your name only if deemed affordable by the new lender

If you would like further information, please do not hesitate to contact us on 01206 577676.

Divorce. One of the most stressful times in our lives.   Dealing with what’ll happen to the house, what’ll happen to the children… The last thing anyone wants to think about (even at the best of times) is tax.   Capital Gains Tax to be specific, or CGT for short.

Charges to CGT arise on the disposal of an asset if its market value or sale price is higher than its acquisition value or purchase price.

The current rate of CGT is 10% of any gain made for basic rate income taxpayers, and 20% for higher rate income taxpayers.   For the disposal of residential properties, this rate is increased to 18% and 28% respectively, unless an exemption applies.   There are also deadlines by which HMRC must be notified of any gains and the CGT must be paid, otherwise one may be liable for interest and further penalties.

At present, couples that are married or in a civil partnership can transfer assets from one to the other without incurring any liability to CGT.   The receiving spouse is deemed to receive the asset at its acquisition value. This means that there is no immediate tax payable on the transfer- it is effectively deferred until a subsequent disposal.

If they then decide to split up, such transfers will only be exempt from CGT until the end of the tax year in which they separate – up to and including 5^th April of that tax year.   For CGT purposes, couples are treated as separated if they transfer those assets following a court order, a separation agreement or are separated ‘in such circumstances as are likely to be permanent’.   Therefore, if a couple separates in November for example, they have only until the following April to reach agreement and then transfer assets between them if they want to avoid incurring charges to CGT – a matter of months.   This deadline can pile even more pressure on couples already going through a turbulent time and, even with the best intentions, they are subject to factors outside their control, such as lengthy administrative and court delays.   Following the end of the tax year in which they separate, any assets passing between the couple will be deemed to be transferred at the current market value. The gain will be calculated using this figure and CGT worked out accordingly.

On 20^th July 2022, HMRC published draft legislation for the Finance Bill 2023 which proposed extending the deadlines for disposals made on or after 6 April 2023.  Spouses will be given up to 3 years, after the year in which they separate to transfer assets between them without incurring a charge to CGT. Better still, those who transfer assets pursuant to a court order or separation agreement, will have unlimited time by which to do so.  The money that would otherwise be spent on CGT, can be better spent elsewhere, for example on rehousing the spouses and their children.

A spouse who retains an interest in the former matrimonial home i.e. continues living there will continue to have the option to claim Principal Private Residence Relief when it is sold.   The spouse who transfers their interest in the former matrimonial one i.e. moves out but is entitled to receive some of the sale proceeds when it is sold, can apply for the same tax treatment to those proceeds as were applicable when they transferred their interest.  This scenario can be particularly useful for couples who want to postpone selling the family home under what is known as a ‘Mesher Order’ to allow their children to remain living there until they are adults.   At present, Principal Private Residence Relief is available to the resident spouse but only in very limited circumstances to the spouse who vacates.

Remember these proposed changes have not yet been implemented and the current law still stands.

Tax is a complicated issue, and we recommend you seek professional advice from an accountant before committing to any decision to do with your separation or divorce.

If you would like further information, please do not hesitate to contact us on 01206 577676.

 

She said maybe!

 

In the old days, couples living together without being married were often referred to as ‘living in sin’. Fortunately, those days are gone, and many couples now make a conscious choice not to marry or to at the very least not rush into it. There are several reasons for this societal shift.

Firstly, we are as a nation are increasing secular and those of us who are not religious needn’t be married in the eyes of God.

Secondly, whilst the average cost of a wedding in the UK varies from year to year, it is easily over £10,000- money that may be better spent elsewhere, for example on a deposit for a first home.

Thirdly, having children before marriage is no longer frowned upon.

But where does this leave couples legally?

Well contrary to public belief, there is no such thing as a common law marriage. If you did not marry, you are not married, and so if the relationship breaks down, cannot pursue the same financial remedies available to divorcees, no matter how long you have lived to all intents and purposes as a married couple, and regardless of whether you have had children. Cohabitees cannot for example make a claim for spousal maintenance, lump sum payments, pension sharing or property orders (unless a declaration of trust can be established).

Further, if one of you dies intestate, that is without a will, the bulk of your estate will not automatically pass to the other, in the same way it would to a widow or widower. Whilst cohabitees can make a claim under the Inheritance (Provision for Family and Dependants) Act 1975, certain conditions will need to be met and any award made will likely be less than that for a widow or widower.

Its abundantly clear that those cohabitees do not have the same legal rights and protections as those that are married, at least not yet. There are however alternative options to marriage itself.

 

Cohabitation agreements

This is similar to a prenuptial agreement in that it sets out how finances should be managed during the relationship and in the event of separation. It can cover the distribution of all capital and income, including bank accounts, property, pensions, life insurance and wills and the apportionment of debts and living expenses.

Property

It is advisable to hold the property you both live in either as joint tenants (that is a 50/50 split) or as tenants in common (that is in proportion to your contributions).  If one of you already owns the property by yourself, you might consider transferring some of it to your partner or drafting a declaration of trust setting out any other agreements as to ownership reached between you.

Wills

We recommend that you create a will to prevent your estate passing under the rules of intestacy. If you die without a will, your estate may pass to your children, parents or even siblings, but never your partner as cohabitee.

Children

Child maintenance is predominantly governed by the Child Maintenance Service.  Whilst married parents can also claim additional child maintenance by order of the court as part of their divorce settlement, cohabitees can also make a claim for various financial orders under Schedule 1 of the Children Act 1989.

The team at GoodyBurrett can help with any or all of the above. Please don’t hesitate to contact us on 01206 577676 or [email protected].

Does the snail still prevail?

A recent case prompted me to look further into the new rules as to how the court send out any application for divorce.  Until relatively recently, all applications for divorce had to be sent on paper to the regional divorce centre at Bury St Edmunds.  Once the family court went ‘on-line’, although the application required the receiving party’s e-mail address and used to communicate with users via e-mail, the court still used to send out the divorce petition by Royal Mail, (snail mail??).  This was their default method.   If you wanted the other person to receive the papers in any other way, you had to make an application.

Most people now want to receive documentation by e-mail – it’s  paperless and its immediate.  Have the court moved with the times and changed this default method of service? Has the introduction of the new Divorce, Dissolution and Separation Act 2020 made any difference?

Yes and no.

It is important you provide the respondent’s e-mail address so the court can serve documents to them by e-mail.  They will receive all correspondence via email.   You have to make sure it is not your own e-mail address and is nor is it the other person’s work e-mail address.   It needs to be their usual personal e-mail address.   If you don’t give an e-mail address,  the papers will be served by Royal Mail paper post which of course will take longer.

But, although the court say that all correspondence is sent by e-mail, you still have to provide a postal address too, for two reasons.  First,  so the court legal staff or judge can see whether or not the person receiving the application lives within the jurisdiction of England & Wales; secondly,  so that in addition to sending the application for divorce by e-mail, the court can also send out a paper version of the Notice of Proceedings.  If the court just sent the application out by e-mail alone and it had gone into a junk or spam box, it could go unnoticed, so the court have to do their best to bring the application for divorce to attention.

If you can only provide an e-mail address, you’ll still have to make a separate application to the Judge requesting the court’s permission to serve by e-mail only.  Separate application…….another court fee……delay…….best avoided if at all possible.

See a solicitor and get it right first time.  Contact Susan Devereaux, our Family Solicitor for more information and advice.

Our Family Team are available for appointments so please do give us a call on 01206 577676.

Any email enquiries can be sent to [email protected]

Don’t mention the… prenup.

Once the stuff of Hollywood royalty, the ‘prenup’ as its colloquially known, has become as much a part of marriage to us mere mortals as it is to them. For you needn’t have the wealth of Michael Douglas to, quite sensibly it might be said, want to protect your assets.  And where to start? Discuss it with your partner as soon as possible, preferably before the proposal and if not almost immediately afterwards. Speaking from a girl who knows (though you’d think it obvious…) there is nothing less romantic in the lead up to your wedding than negotiating the terms of your divorce.

Nobody wants to enter a marriage planning their divorce but sadly the statistics and Bridget Jones will tell you that half of marriages end this way.  A lot can happen over the course of the years and sometimes decades. A prenup can act as a type of insurance. You’d have health insurance in case of serious illness, or house insurance in case of fire, so why not a prenup in case of divorce? You don’t want these things to happen, or even predict that they will, but there’s a possibility, however slight that they might.

A prenup can protect those valuable assets acquired by a party prior to the marriage, and those they expect to receive in the distant future, for example, by way of inheritance.  They can also be particularly useful in protecting the interests of children from a previous relationship, or if there is a significant age gap between the parties meaning one has a much longer working life ahead of them than the other.

So how much weight have they got? Well, since the landmark case of Radmacher v Granatino, rather a lot.  Whilst they are not binding on the courts, they are indeed persuasive provided each party has entered into the agreement…

– of their own free will

– informed of its implications

– not under undue pressure

In most cases, this will mean having taken legal advice.

The courts should then give effect to the prenup unless in the circumstances prevailing it would not be fair to do so. For example, if the financial situation had changed in a way not envisaged when the prenup was entered into or if it would be prejudicial to any children of the marriage.  You’ll find most prenups contain regular review clauses for this reason.

If you’d like us to help you with a prenup or have any questions, please don’t hesitate to contact us on [email protected] or 01206 577676.

And remember try to get it sorted sooner rather than later so it doesn’t overshadow your big day!