Insights

The impact of the Spring Budget on separating couples

21/03/2023

Now the dust has settled, family law specialist Lucy Hoare recaps on the key changes set to benefit private individuals following last week’s Budget.

 

CGT window extended

 

As announced by Parliament last summer, last week’s Budget has confirmed that the government will legislate in the Spring Finance Bill 2023 to makes changes to the rules that apply to the transfers of assets between spouses and civil partners who are in the process of separating. The changes will take effect for disposals made on or after April 6, 2023. The changes mean that married couples and civil partners will have up to three tax years to transfer assets such as property, shares or business interests between them, before incurring CGT.

 

Couples and their advisers have currently been working with the ‘no gain, no loss’ window of the expiration of the tax year in which the parties separate to avoid CGT when transferring assets. These new measures will greatly benefit those spouses who are separating/divorcing and are in the process of distributing assets between themselves.  It will particularly benefit those parties involved in more complex proceedings, allowing greater focus on the divorce (as opposed to tax considerations) when agreeing the division of wealth. These changes will no doubt mean that some decisions are being delayed so that couples can benefit.

 

Parties can benefit from these changes if the transfer of assets are detailed in a court order, so it is important to seek legal advice.  Where tax issues arise alongside divorce and separation, we can work alongside trusted tax advisors to advise you on the best way forward.

 

Pension and Divorce

 

Another perhaps more surprising Budget announcement which has relevance for past and future financial settlements is the removal of the current pension lifetime allowance (LTA), as well as an increase in the amount that can be saved into pensions tax-free each year, this rising from £40,000 to £60,000.

 

The measure is intended to encourage people to keep working later in life.  However, it may have an unforeseen impact on divorce negotiations as the value of larger pensions may now be dramatically increased.  Subsequently a party to a divorce who previously might not have been so concerned about proposing a share over a large pension because of the LTA, may now be more incentivised to retain these assets.  The latter new measures also give divorced parties who have shared their pension a greater chance to recover their pension value before retirement.

 

Due to these changes, where pension shares have already been agreed but not yet implemented a revised calculation may be required, particularly in cases where a pension offset is required. Negotiations involving pensions of significant worth are complex and we work alongside actuaries and financial advisors to ensure clients are best placed to make the right decisions.

 

If you have any questions about the implications of the recent Budget on your divorce or separation then Lucy or any member of the LMP team shall be pleased to assist.

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